The benefits of forming a group structure

As your business grows and matures there are certain benefits of forming a holding company. A holding company is an entity that owns and controls shares in other companies, known as subsidiaries, without necessarily engaging in its own business operations. It is something we love talking to our clients about.

Here are some key advantages of forming a holding company:

Tax Efficiency

One of the primary benefits of a holding company structure is the potential for tax efficiency. Dividends received from subsidiary companies are often exempt from corporation tax when passed up to the holding company. This allows profits to be retained at the holding company level, where they can be reinvested or distributed without additional tax burdens. Additionally, when a holding company sells shares in a subsidiary, the gains may be exempt from capital gains tax under certain conditions.

Asset Protection

Your trading company is by definition risky, susceptible to changes in demand levels or supplier costs. A holding company structure can provide a layer of protection for assets. By isolating valuable assets such as intellectual property, office or factory buildings, or cash reserves within the holding company, you can shield them from operational risks faced by subsidiaries. This segregation can protect these assets in the event of financial difficulties, legal disputes, or insolvency in any of the subsidiary companies.

Simplified Management and Control

A holding company enables centralised management and control over multiple businesses. By holding the majority of shares in subsidiaries, the holding company can oversee their operations and make strategic decisions, ensuring consistency across the group.

Enhanced Financial Flexibility

A holding company can enhance financial flexibility within the group. It can allocate resources where they are needed most, such as lending money to subsidiaries or investing in new opportunities. This structure also allows for the easier movement of funds between companies, which can be particularly beneficial for managing cash flow and financing new ventures or acquisitions.

Succession Planning and Exit Strategies

A holding company can simplify succession planning and provide flexibility in exit strategies. It allows for the gradual transfer of ownership or control to family members or new owners without the need to sell individual subsidiaries. This structure can also make it easier to sell parts of the business or bring in investors without affecting the entire group.

As accountants is great when we can be pro active and advice on your company structure, is something we really advise as your company grows.