What is a holding company?

If you’ve dabbled in incorporating a business or considered the structure of ownership within a relatively large-scale company, then you might have come across the term ‘a holding company’.

As the name suggests, a holding company isn’t generally used for selling goods or services associated with your business. Still, instead, it is a separate parent company used to hold investments and assets. It is created to own some share of the control of all subsidiaries that either already exists or are formed as part of this restructure.

In other words, rather than a single business with complete ownership and involvement, incorporating a hierarchical structure to your business will offer opportunities for growth and a more defined sense of direction. It is a step that some companies naturally progress towards, and our team at Dillon Partners can support you through these changes if you are interested.

It is generally more beneficial to create a holding company over having a standalone business for several reasons. Firstly, this is wise risk management, allowing the group structure to minimise the impact of poor trade performance in different investments.

Asset protection is another one of the main reasons why a holding company is created. Transferring assets to a holding company and away from your operating business can protect them from creditors should unplanned events befall you.

Even if you are a low-risk kind of company, the nature of business is inherently risky, and if you can protect assets and investments, it is simply wise to do so.

Tax benefits are another advantage; where is it possible to gain tax savings by investing your profits corporately rather than personally. There are many elements here, and bespoke solutions will be developed that suit your business situation.

Of course, no option comes without its disadvantages; it is just essential to weigh up the pros and cons to determine whether a reaction to a situation will benefit you and your business. A holding company does incur initial set up costs which can be off-putting or simply unattainable to some in the short term.

By talking it through with your financial advisor at Dillon Partners and following the correct protocol should you wish to set up a holding company, you can also avoid surprise tax charges which may be an additional unexpected expense.

Done right, a holding company will enable your business to grow unhindered, freeing up your business to manage risk more effectively, and compound assets safety. Get in touch if this sounds like something you might be interested in doing.