If you run a successful business, you may be hearing more and more people talk about holding companies. But what are the benefits of a holding company, and is it the right choice for you? At Accountview, we help self-employed individuals and business owners make an informed decision. We review your financials, your plans, and your risks, and we’ll set up the holding company if it makes sense for you.
What is a holding company?
A holding company is a limited liability company whose primary purpose is to own shares in other companies, often the operating company where the actual business is conducted. The holding company itself typically does not engage in any customer-facing business. It receives dividends from the operating company and serves as a cash reserve, a means of risk diversification, and a platform for new investments.
Advantages of a Holding Company in Practice
There are several specific reasons to choose a holding company structure, and many owner-managers find that the benefits become apparent several years down the road.
- Tax-Free Distribution: Dividends from an operating company to a holding company are generally tax-free. The funds can be held in the holding company without incurring personal income tax until you decide to withdraw them.
- Protection of Savings: When profits are held in the holding company, they are separated from the operating company’s risks. Should the operating company go bankrupt, the funds in the holding company are, in principle, protected.
- Flexible exit: If you sell the operating company, the proceeds from the sale can typically be distributed tax-free to the holding company. This allows you to reinvest without first paying personal income tax.
- Making Way for a Generational Transition: A holding company structure makes it easier to transfer the operating company to the next generation because ownership and savings can be separated.
- Retirement Savings: Many business owners use holding companies as a long-term retirement savings vehicle that provides access to both stocks and bonds.
Disadvantages of a Holding Company You Should Know
No structure comes without a cost. Having two companies instead of one entails administrative requirements, costs, and obligations. You must prepare two annual reports, file two tax returns, and comply with the rules of the Companies Act for both companies.
Furthermore, a holding company is not a shield against all forms of liability. Personal guarantees and direct illegal conduct can still affect you as the owner. We therefore always review both the advantages and disadvantages before recommending a structure.
When does it make sense to set up a holding company?
A holding company only becomes truly interesting when the operating company generates profits that don’t need to be withdrawn right away. The rule of thumb is that this structure is worth exploring as soon as there is an annual profit of 100,000 to 200,000 kroner that can be retained.
Self-employed individuals with sole proprietorships are also considering this model. In this case, it is first necessary to convert the sole proprietorship into an ApS and then establish the holding company above the operating company. We handle the entire process as a single, comprehensive package.
How We Work Together
At Accountview, we follow a brief, structured process that typically takes two to four weeks. We review your financial statements and future plans, calculate the tax implications, and prepare documents for both the holding company and the operating company. Once the structure is in place, we handle ongoing bookkeeping, annual reports, and tax matters for both companies.
Self-employed individuals with sole proprietorships are also considering this model. In this case, it is first necessary to convert the sole proprietorship into an ApS and then establish the holding company above the operating company. We handle the entire process as a single, comprehensive package.
Frequently Asked Questions
Can I place my existing ApS under a holding company without paying tax on the gain?
Yes, this can often be resolved through a tax-free stock swap. You establish the holding company using your existing shares as capital contributions, thereby avoiding taxation on any appreciation in the value of the operating company. The rules are specific—including a three-year ownership requirement—so we always conduct a detailed assessment before making a decision.
How many operating companies can a single holding company own?
There is no upper limit on the number of subsidiaries. Many owner-managers build a multi-tiered structure in which each subsidiary operates its own business, while the holding company keeps them all together. This structure is useful in partnerships where multiple owners each want their own holding company on top of a joint operating company.
Can a holding company invest in securities and rental properties?
Yes, and that’s one of the reasons why many people choose this model. When the funds are held in a holding company, they can be invested in stocks, bonds, or real estate. Taxation follows corporate tax rules, and the return is not considered personal income until you pay dividends to yourself.
What happens to the money in the holding company if I shut down the company?
When a holding company is liquidated, the accumulated funds will typically be distributed as liquidation proceeds and taxed as dividend income. With careful planning, the distribution can be spread out over several years so that you can make the most of the low tax thresholds.
Would you like to see how a holding company could benefit your business? Let’s have a quick chat about your situation.
