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The holding company explained by Blendy digital accountant

Why and how to create a holding company?

January 19, 2023

Creating a holding company can be a complex process and it is important to understand the tax and legal implications before making this decision.

Your company is growing and you already have several subsidiaries or entities, or are planning to create some this year? Do you want to grow externally by acquiring another company? Then you have certainly asked yourself whether you should now also create a holding company...

To help you make the right choice, here are several things you should know. Obviously, to go further, ask us! Our Success Coaches will help you answer your questions and implement the solution best suited to your growth objectives.

What is a holding company

A holding company is a company that holds interests in other companies. It can be used as a management structure for the ownership of different businesses, or as a way to diversify risk by investing in several different businesses. Holding companies can be used to protect the assets of your company, to facilitate financial transactions and to optimize taxes.

A holding company can be a listed company or a private company. It can take different legal forms. They also exercise control over the companies they own by deciding on their strategy and management policy.

Why create a holding company? What are the advantages

The advantages of a holding company may include better asset protection, as investments are generally separated from the company's operational activities. A holding company also provides greater flexibility for financial transactions, such as mergers and acquisitions. Finally, holding companies can reduce taxes by pooling the profits and losses of multiple companies.

  • Asset protection: By placing your company's assets in a holding company, they are protected from the risks associated with your business. For example, if the company goes bankrupt, the assets of the holding company will not be affected.
  • Diversification ofrisk: by investing in several different companies through a holding company, a company will be able to reduce its exposure to the risks associated with a single sector or company. This can be especially wise for companies that are heavily dependent on a single product or service.
  • Investment portfolio management: A holding company allows for the management of a diversified investment portfolio to spread risk and maximize profits.
  • Passing on assets: The holding company also facilitates the passing on of assets from one generation to another. By placing your company's assets in a holding company, they can be passed on more easily to your heirs without having to sell the company, for example.
  • Facilitating the acquisition of other businesses: A holding company can be used to finance the acquisition of other businesses using its own assets, without the need for debt. This prevents you from having to deal with high transaction costs or liquidity issues.
  • Cost reductionthrough centralized management:The holding company can be used as a centralized management structure for the companies it owns. This allows you to reduce your administrative and legal costs of managing multiple companies and gain efficiency in managing each company separately.
  • Tax advantages: In certain cases, it may be fiscally advantageous to create a holding company rather than acquiring a company directly.

The steps for the creation of a holding company

To create a holding company, you must create a new company and "capitalize" it. It is also important to define the objectives of the holding company and to plan the investments to be made.

  • Choosing the legal form of the holding company: The holding company can come in different legal forms, such as a joint stock company or a limited partnership with shares. It is important to choose the one that best suits your needs according to your size, structure and development strategy.
  • Choose a name for the holding and check that it is available.
  • Draft the holding company's articles of association and determine the rights and obligations of the shareholders: The articles of association of the holding company define its objectives, structure and operating rules. They must be carefully drafted to avoid any legal problems later on.
  • Subscribe the shares of the holding company and pay the share capital.
  • Register the holding company: You must declare it to the relevant authorities, such as the clerk of the commercial court the creation of your holding company (as for any company creation). This involves filling out and submitting official documents and paying related administrative fees.
  • Raising funds: To buy shares in other companies, a holding company needs funds. You can raise funds by issuing shares or borrowing money from banks or other investors.
  • Acquire shares in other companies: once the holding company is created and has funds, you can start buying shares in other companies.

It is important to note that these steps may vary. Depending on the country and jurisdiction, holding companies may be subject to specific rules and regulations. It is therefore important to find out about the laws and rules in force before creating a holding company.

Obviously, your CPA is the first person you should ask for help. At Blendy, a digital accountant, we help several of our clients with this specific growth issue. To find out how we can help you and what type of structure to put in place, ask our team.

Experts in business management, our Success Coaches advise you on the choices available to you and accompany you at every stage, in particular to ensure that all legal and tax procedures are respected.

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