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Many businesses start with an idea to sell a specific product or bespoke service, but some companies exist purely to own or invest in other businesses. Known as ‘holding’ companies, they’re not just for massive international organisations.

Businesses of any size can set up a holding company, and will do so for lots of different reasons. We look at what they are, how they work, and how holding companies are created.

What is a holding company?

In most cases, a holding company won’t manufacture products, sell goods, or provide services in its own right. Rather than trading, they’re often created to ‘hold’ (i.e. own) assets such as equipment, machinery, property, or even trademarks and copyrights.

You might also see holding companies referred to as a ‘parent’ company if they own 50% or more of another business – known as a subsidiary company.

What are subsidiaries?

A subsidiary company is a business owned and controlled by another company. For a holding company to qualify a company as a subsidiary according to the Companies Act 2006, it needs to:

  • Be a member of the said subsidiary
  • Own more than 50% of the voting rights
  • Have a right to both appoint and remove most the company’s board of directors
  • Solely control a majority of the voting rights (as agreed with other shareholders)

 

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Should I set up a holding company?

There are advantages and disadvantages to every business decision, depending on your circumstances. We’ll take a look at some of the main considerations and uses, so you can decide whether creating a holding company is for you.

Buying, selling, or creating other companies

Some businesses create subsidiaries to explore or launch into a new market. This could be branching out in a different country or starting a business in a completely different industry. Setting up a subsidiary allows you to experiment and trial new things, without harming the businesses you already have.

If you buy or takeover an existing company which already has its own brand, owning it through a holding company allows it to keep its established reputation while your business helps control it from behind the scenes. This could be a great business investment, as the companies won’t be merged or associated with one another, so it’s business as usual.

Separating assets from the business

You can also use a holding company to separate business assets such as property or equipment from your subsidiary companies.

For example

Let’s say you own a company that offers legal services, and the business owns the office building you’re based in.

You’re ready to sell your business, but don’t want to part with the building just yet because property prices are lower than normal.

Transferring the property to a holding company means you can sell the business whilst keeping hold of the property until the market perks up.

Potential tax benefits

Moving cash and assets from one business to another normally results in a tax bill, but creating a holding company can allow you to move things between entities without incurring tax. As ever though, tax rules are very complicated – always take advice!

Minimised risks

A holding company is a separate legal entity to the businesses it owns, so keeping your businesses separate can be a way to protect company assets. For example, if one company goes bankrupt, your other companies won’t be affected. You also won’t lose your valuable assets if they’re owned by the holding company!

It can be great for experimenting too. If you wanted to try out a new product, or test out a new market that’s high risk, you could create a subsidiary – meaning if it doesn’t work out, any losses are not transferred to the holding company, and in turn don’t affect any subsidiaries you have that are doing well.

Financial transparency

Setting up multiple operations can make it more difficult to see your overall financial health. It can also make it trickier to explain your finances to potential lenders or investors!

How do I register a holding company?

It’s important to note that a holding company isn’t a type of legal business structure in the UK, although most holding companies are limited companies, and setting one up is no different to creating any other company limited by shares.

Step-by-step guide to registering a holding company

1. Pick a unique business name and register with Companies House.

This is really easy to do and can be done online or by post. You might even choose a company name and then use a separate trading name.

2. Appoint company directors

This is an important step as the directors of your holding company are responsible for making key decisions and overseeing the day-to-day management.

3. Write a business plan

Every business needs to have a plan, but it can be particularly complex when you have multiple subsidiaries. So, creating a business plan is vital!

4. File a memorandum and articles of association to Companies House

This is a bit like having a set of rules for your holding company to follow, and an explanation of its structure (don’t let the name scare you too much, it’s not as bad as it sounds). The articles of association must be signed by all of the shareholders.

5. Open a business bank account

Once you’re good to go, opening a business bank account is crucial to begin receiving and sending any financial transactions.
 

Can I set up a holding company for my current business?

Yes, you can create a holding company that has full ownership of an existing business. If your holding company owns 100%, your current business is known as a ‘wholly owned subsidiary’.

Can anyone own a holding company?

Anyone can create a holding company – but you’ll need to make sure it fulfils all the legal requirements to qualify as one. It can be hard to understand, so we’d recommend chatting with an accountant to ensure it’s the right move for you.

 
Need to speak to an accountant about creating a holding company? Call us on 020 3355 4047 or get an instant online quote.

About The Author

Rachael Anderson

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people! Learn more about Rachael.

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