What is a holding company?

Tue, 14.11.2023, 10:00

Ah, the holding company! That little wonder that can create a veritable empire of companies and attract the attention of entrepreneurs looking for financing. But what exactly is the role of such a company? What are the advantages and disadvantages of setting up a holding company? How does one proceed and what legal form to choose? All this and more is revealed in our comprehensive guide. Are you ready to become the king of holding companies?

What is the purpose of a holding company?
A holding company is that famous entity that brings together the financial holdings of several other companies, the so-called 'group companies'. But make no mistake: holding companies are not traders. Their activity consists exclusively of investing in the various group entities, receiving a commission for their valuable administrative and strategic advice, known as 'management fees'.
 
However, they should not be relied upon to manage the group companies, as they are not involved in their development or operation. A distinction is made between passive holding companies, whose shareholders merely hold financial securities in order to receive financial income, and active holding companies, which offer management fees to their entities in addition to financial income. Here is everything you need to know about the fabulous world of holding companies!
 
The tax advantages of setting up a holding company
Setting up a holding company offers attractive tax advantages to entrepreneurs wishing to optimise their tax situation. The services provided by the holding company to the group entities are deductible from the latter's taxable income, allowing a reduction in taxes. However, it is essential to comply with the applicable tax rules.
 
In addition, the creation of a holding company offers advantages such as tax consolidation, which allows losses and profits to be offset against those of the subsidiaries, and tax exemption on 90% of capital gains from the sale of company shares. The holding company also acts as a 'tax shield' for shareholders, allowing dividends received and paid to be almost totally exempt from tax and social security contributions. An appreciable tax advantage, don't you think?
 
The strategic advantages of setting up a holding company
Setting up a holding company does not only offer tax relief. It streamlines the organisation by centralising support functions such as human resources, marketing and accounting, ensuring greater efficiency, like having one top chef instead of several, each preparing a dish. In addition, the holding company facilitates bank negotiations by providing guarantees for the entire group, allowing for more advantageous financing conditions. In addition, loans between group companies are possible under certain conditions. In short, creating a holding company is like building a solid ship by putting all the pieces together, instead of building many small boats that risk capsizing.
 
The legal advantages of setting up a holding company
If you want to play in the big leagues, setting up a holding company can be a smart way to gain decision-making power. Thanks to this structure, it is possible to control all subsidiaries while having a capital participation of significantly less than 50 per cent. This means that it is possible to hold a smaller slice of the cake while still having control of the icing on the cake. In other words, the holding company offers leverage over capital ownership, which can be very advantageous from a legal point of view.
 
The disadvantages of setting up a holding company
When deciding to set up a holding company, it is important to bear in mind some potential disadvantages. First of all, you will have to draw up consolidated financial statements and carry out an ordinary audit, which may entail additional costs. But do not worry, these organisational constraints may be necessary to secure the long-term future of your holding company. Moreover, although the tax benefits are attractive, they are not always easy to realise. In order to obtain these benefits, certain conditions must be met, which can be quite complex. To avoid risks, it is advisable to consult competent professionals. Finally, do not forget that setting up a holding company may entail additional costs. However, it is possible to optimise them at the holding company level. Do not be discouraged, therefore, and stay the course!
 
How to set up a holding company?
If you are considering setting up a holding company, do not improvise. It is essential to think carefully about the structure of your company. It is advisable to consult a tax expert or a specialised lawyer to help you choose the most appropriate structure, especially in the case of a spin-off. There are several options for setting up a holding company. The first is to create a new independent company and use its capital to invest in subsidiaries. The second option, which is more complex and costly, is to make a 'partial contribution of assets' to a new company that will become your subsidiary, in turn becoming a holding company. The third option is to create the holding company by contributing your shares from the beginning, which requires an auditor's valuation. If you choose to transfer your shares, be careful. This is a tax-legal operation, provided that you quickly reinvest a significant part of the funds in new projects. Failure to comply with these rules may be considered by the tax authorities as an 'abuse of right', with the risk of a tax write-off. In other words, care must be taken to avoid serious financial consequences.
 
What is the legal status for setting up a holding company?
If you are considering setting up a holding company, you will have to choose the legal status that is most suitable for you. The choice is between a limited company and a limited liability company. But do not take this choice lightly: before deciding, you must consider the advantages and disadvantages of each legal form. In short, it is a bit like choosing your pet: dog or cat, it all depends on your preferences and lifestyle!
 
IFJ helps you create your holding company
IFJ simplifies the creation of your holding company by eliminating the stress associated with administrative formalities. Fill out an online form in just a few minutes to express your needs. Our consultants are available to answer your questions. Once you have completed the form, our team will create all your company documents within 7 days and also register your company with the Commercial Register. Enjoy the peace of mind of knowing that our experts will take care of everything from A to Z. With IFJ, setting up your company is quick and easy. Our packages are tailored to your needs and cover all costs, including notary fees.