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What is Holding Company? How to set up a Holding Company?

What is Holding Company? How to set up a Holding Company?

Setting Up a Holding Company: What is it and How to Do it?

A fairly typical method for organisations with global aspirations is to incorporate a holding company in the UK to possess subsidiaries overseas. Now that even medium-sized enterprises are expanding internationally, there is a rush to choose the best location for setting up a holding company.

To create a holding company is to establish a corporate entity designed not to produce goods or services itself but to own shares in other companies. This strategic move can significantly benefit businesses looking to expand globally, as it allows for more effective control and management of subsidiaries across different regions. Moreover, creating a holding company can facilitate market reach diversification and portfolio expansion across various industries without the complexities of managing day-to-day operations.

Additionally, it can own various assets including real estate, patents, trademarks, stocks, and others. When a holding company has complete ownership of a business, it is referred to as a wholly-owned subsidiary or operating company.

If you have wanted to set up your holding company, then you are in luck! This guide will dive into everything you need to know about a holding company’s name and its advantages. Let’s begin! Or speak with our adviser directly on 03300 887 912

What is a holding company and its relationship with subsidiary companies?

A holding company, sometimes referred to as a parent company, is a group structure, essentially a company that controls and manages other companies, known as subsidiaries.

Establishing a holding company in the UK can offer several advantages, including the creation of a corporate group structure for tax advantages, besides tax charges such as the power to keep an eye on and manage the operations of subsidiary companies, lower tax obligations, and secure assets. This facilitates the tax-neutral transfer of assets between group companies and leverages the benefits of using a holding company to establish a corporate group for obtaining tax advantages.

Holding company serves as a means for individuals to safeguard their personal assets tax liability and mitigate the risk of liability from debts and potential lawsuits.

By holding assets, investments, intellectual property, and real estate, these companies provide a protective shield limited liability for individuals. Through the ownership of shares, holding companies limit their liabilities and focus specifically on managing and optimizing these assets.

This strategic approach allows individuals to separate their personal assets from the risks associated with their business ventures, thus offering a level of security and protection for valuable assets.

Holding company plays a crucial role in asset protection and risk management within the realm of personal finance, business assets and investment.

Setting Up a UK Holding Company: What Valuable Assets Can It Own?

If you’re setting up a holding company in the UK, here are a few examples of what those assets can include:

  • Shares of stock in their subsidiaries, including limited liability companies, or other companies
  • Private equity funds, Public stocks
  • Bonds, Real estate
  • Limited partnerships
  • Brand names, Patents
  • Trademarks

Process of setting up a holding company

But before you start the process of setting up a holding company or trading company yourself, it is important to understand the legal requirements that must be met. Here is what you need to know:

Control is key: To be considered a holding company and establish a controlling interest, you must own over 50% of the voting rights in your subsidiary companies. This ownership stake allows you to control the subsidiary companies by having the right to hire or fire directors if needed.

Holding the majority: As the parent company, you must also be a member of your subsidiary companies and hold the majority of voting rights according to shareholder agreements.

How to set up a holding company?

Here are the steps you must follow to get using a holding company or to set up a holding company:

Choose a company name: Make it unique and stand out! It can be a new name or an existing one, but just make sure it is not already taken by another registered company. When setting up a private company limited by shares, this step is crucial for legal incorporation at Companies House.

Provide the registered address: This is where the company’s official documents will be kept, so make sure it is a reliable and accessible location. This address is also used for the registration process of a private company limited by shares.

Director and shareholder information: Who is in charge? Provide details about at least one director and shareholder, including their name and address. This information is essential for the legal setup of a private company limited by shares.

Draft the Articles of Association and Memorandum of Association: These are important documents that outline the internal rules and regulations of your holding company. They are also fundamental in the registration process of a private company limited by shares at Companies House, detailing the company’s structure and governance.

All about shares: If shares are being issued, make sure to provide information about the number of shares each shareholder will receive. This step is particularly relevant for a private company limited by shares, as it involves the allocation and distribution of shares among shareholders.

People with significant control: Make sure to provide information about any individuals who have significant control over the company. This is a requirement for the filing process of a private company limited by shares.

With all the required information in hand, we can begin the process of setting up your business operations and holding company by informing the Companies House. In most cases, the process is completed within three working hours, and you will receive a confirmation email once everything is set up.

Factors to consider when setting up a holding company

Setting up a holding company is a big decision that requires careful consideration of several important factors. Here are some things to keep in mind when choosing pure holding company and the right location for your holding company:

Financial considerations: Consider the impact the location will have on financial aspects such as incoming dividend taxation and corporation tax on received dividends. It’s crucial to understand how subsidiaries can pay dividends to the holding company without creating a corporation tax liability, emphasizing the importance of tax planning and efficient management of tax liability for holding companies and their subsidiaries.

Logistical considerations: Think about the location’s accessibility and proximity to key resources and suppliers.

Business considerations: Evaluate the local business environment and whether it aligns with your business goals.

Operational requirements: Consider the impact the location will have on day-to-day operations, such as access to skilled workers and infrastructure.

Jurisdiction: Determine which jurisdiction the holding company will fall under and the resulting implications for taxation on ongoing dividends.

3 benefits of incorporating a holding company

Some of tax benefits of the benefits of incorporating a holding company include:

Spread out your risk

By setting up a holding company, you can diversify your business portfolio and spread out potential risks among other assets. This way, if one company under the holding structure experiences any difficulties, the other companies can help balance out the impact.

Access to capital

Holding companies offer shareholders a convenient way to raise capital, as they can issue shares in each subsidiary company they own. This not only provides funding for the holding company, but also provides additional resources for individual companies within the structure.

Expand your horizons

A holding company structure can open up new doors for your own business operations, allowing you to venture into new markets and opportunities for growth. This can ultimately lead to increased revenue and success for your business.

Advantages of Low Corporation Tax Rate for Holding Companies

The UK government has officially set the current corporate tax rate at 19%. This rate is considered internationally low, offering a distinct advantage for establishing a holding company in the UK. This competitive tax rate contributes to the attractiveness of the UK as a business destination.

Why choose our services?

Choosing our team to assist with setting up a holding company in the UK offers several advantages. Our team of experienced accountants and tax specialists possess a deep understanding of all aspects of accounting, taxation, and legal compliance for a holding company owns other companies in the UK.

Our compliance with HM Revenue and Customs regulations and policies ensures that our clients operating companies’ holding companies are established and operate within the bounds of the law. Call us on 03300 887 912

Frequently Asked Questions – FAQs

What is a holding company?

A holding company is a company that owns the majority of shares in other companies, known as subsidiaries, and its primary purpose is to hold and manage these investments. Unlike parent companies, which may directly manage their subsidiaries and engage in their operational activities, holding companies primarily focus on the oversight and financial control of these entities, highlighting a distinct difference in business practices between holding companies and parent companies.

What are the benefits of setting up a holding company?

Setting up a holding company can provide advantages such as centralized control and management of subsidiary companies, tax benefits, and limited liability protection.

How do I set up a holding company in the UK?

To set up a holding company in the UK, you will need to register a new company with Companies House, appoint directors and shareholders, and create a memorandum and articles of association.

What are the legal requirements for establishing a holding company in the UK?

The legal requirements for establishing a holding company in the UK include compliance with company law, tax regulations, and financial reporting standards.

Can a holding company operate as a trading company?

While a holding company’s primary function is to own and manage investments, it can also engage in trading activities through its subsidiary companies.

What are the tax implications of operating a holding company in the UK?

Holding companies may benefit from tax advantages such as group relief, capital gains tax exemptions, and tax deductions on intercompany transactions.

What are the key considerations for structuring a UK holding company?

Key considerations for structuring a UK holding company include the selection of subsidiaries, corporate governance, financial planning, and tax optimization strategies.

Are there any restrictions on setting up a holding company in the UK?

There are no specific restrictions on setting up a holding company in the UK, but it is important to comply with relevant regulations and seek professional advice to ensure legal and financial compliance.