What is a holding company?
A holding company is a type of company that owns shares in other companies. It is a legal entity that functions as an investment company and is established with the primary purpose of owning shares in other companies and investing in them. In practice, the holding company acts as an intermediary between its subsidiaries and their owners.
The primary activity of the holding company consists of buying and holding shares in the subsidiaries. This means that the holding company does not produce goods or services itself, but rather acts as an investor and collects income from the subsidiaries. Holding companies may also have other activities, such as investing in real estate, commercial properties, or other financial instruments.
A holding company is a capital company, and therefore it can be established as an ApS or an A/S.
What are the advantages?
There are several advantages to establishing a holding company. Here are some of the most important advantages:
Tax advantages: Holding companies are usually subject to a lower corporate tax rate than other companies. This means that some of the profits from the subsidiaries can be transferred to the holding company and taxed at a lower rate. It can also provide the opportunity to build a larger fortune in the long term.
Risk diversification: By setting up a holding company, you can spread the risk over several investments. This can reduce the risk of large losses if one or more of the subsidiaries were to go bankrupt or experience other problems.
Management flexibility: Holding companies can be more flexible than other companies when it comes to making decisions. This is because the management of the holding company does not have to worry about the day-to-day operations of the subsidiaries and can focus on overall strategic decisions.
Tax planning: Holding companies can also be an effective way to plan for inheritance taxes and other taxes. This is because the holding company can transfer the shares in the subsidiaries to descendants while still keeping ownership of the holding company intact.
Better access to financing: Holding companies usually have better access to financing than other companies. This is because banks and other financial institutions see holding companies as more stable and less risky than other companies.
What are the disadvantages?
The disadvantages of a holding structure are quite minimal, but because the structure requires a minimum of two companies, it is necessary to pay formation costs and a business account for each company that is established.
In addition, an annual report must be prepared for each company in the holding structure, and for larger companies, a consolidated financial statement must also be prepared. (Consolidated financial statements are reserved for groups covered by accounting classes C and D)
It should be mentioned that for smaller companies it is possible to opt out of auditing in both the operating company and the holding company.
At LegalUp, we are happy to advise you on the right company structure for your company, and it is also possible for us to have all relevant documents prepared in connection with this.
Establishment of a holding company
If you want to establish a holding company, there are some important steps you must follow.
Company name: Make sure to choose a unique and appropriate company name that cannot be confused with other companies.
Ownership: Decide on the ownership structure and share values, and make sure to create a book of owners that describes the ownership structure and share values.
Capital: Make sure to have prepared the necessary capital before the company is formed.
Documentation: Have all necessary documents prepared, including the memorandum of association, articles of association, and book of owners.
Choose the management: You will also need to choose the management of your holding company. This can be a board of directors or a single director, depending on your company structure. The management is responsible for making decisions and overseeing the company’s operations.
Finance the company: Once you have determined the legal requirements and chosen the management, you will need to finance your holding company. This can be done by investing your own funds or by attracting external financing from investors or lenders.
Buy shares in the subsidiaries: Once your holding company is formed, you can start buying shares in the subsidiaries. It may be a good idea to have a strategy for selecting the right subsidiaries that fit your investment profile and your overall holding company strategy.
Monitor and adjust your investment strategy: Finally, it is important to monitor and adjust your investment strategy on an ongoing basis. This may include making adjustments to your portfolio of subsidiaries or reviewing your overall holding company strategy.
Create a holding company
If you want to create a holding company, there are several ways to do so. One way is to create a new holding company from scratch. Here, LegalUp can help with the entire process.
Another option is to purchase an existing holding company. This can be
