Holding Companies 101

Also called a parent company, a holding company is a company that owns part, all, or a majority of other companies' outstanding stock. (shares)  A holding company may or may not be used for holding other assets and leasing them to an operating company. 

The main advantages of holding companies are:

Ø  A holding company offers the ability to segregate earnings from the main operating company.

Ø  With proper planning you can creditor-proof the assets of the business.

Ø  Can be used for Income Splitting Purposes.

Ø  Generally, if set up properly, you can issue dividends from an operating company up to a holding company on a tax-free basis (Onshore and Offshore)

Ø  Easy to move money between Holding company. and Operating companies via dividends and loans, etc.

The main disadvantages of holding companies are:

Ø  Requires more cost and time, as you now have more than one corporation.

Ø  Requires more planning to be able to effectively use your Holding Company.

Ø  Holding Companies don’t qualify for the Lifetime Capital Gains Exemption on qualified small business shares.

Holding companies should be used in conjunction with a family trust where possible.  The advantages of having a holding company far outweigh the disadvantages, so if you are considering implementing a holding company in your structure please do contact us.  We are here to assist you with all your structuring needs.

Please check back next week and we’ll discuss how Joint Ventures work.