Do I need a holding company?

Kirsty Young Advice and Tips, Limited Company

Many business owners ask us about ‘holding companies’. They’ve heard from someone that they are a great idea from either a tax or protection point of view.

While this can be true, there are wider considerations which need looking at. But first, a quick explanation.


What is a holding company?

Generally, a holding company is the company at the ‘top’ of the chain of your related businesses. The holding company will often hold assets including cash.

Basically, it’s just another limited company that will often own all (or most) of the shares in sub-companies, as shown below.

Holding companies generally don’t trade. They are used to ‘hold’ (i.e. own) things like intellectual property, actual property, investments and cash.


Why would I want to use a holding company?

Holding companies usually have three main potential benefits to business owners:

a) You can protect assets (like cash or property) from a ‘trading company’ failure

b) You can structure a sale of the one of the trading companies more easily

c) In some situations, there can be tax benefits to a set up like this

Let’s use the example structure above.

  • If ‘Trading Company 1’ had to go into liquation, the creditors (generally people the company owes money to) would not usually have a claim on the assets in the other companies.
  • If ‘Trading Company 2’ were to be sold off, you can usually do so without affecting the other companies.


What are the downsides to a holding company?

A holding company isn’t always required or desirable, due to:

– Cost

It’s another limited company to run and will incur costs such as:

    • book-keeping
    • accountancy fees
    • software licence costs
    • formation fees

– Practicalities and Accounting

Your accounts needs to be particularly clear on the movement of cash between the companies. Some owners cause themselves issues by not viewing the companies as unique and use them as one cash ‘pot’. This can have negative consequences for the key advantages of having the structure!

– Administration

There can be additional challenges around clear book-keeping and administration.

– Time

All of the above takes time, money and resources away from running your other businesses.


Should I have this set up at the start of my business?

It depends on your exact circumstances and goals. For the vast majority of small business start-ups, an additional holding company just adds cost and complexity for not a lot of benefit.

You can always add this structure later, albeit with some additional tax planning and administration involved.


I’m still confused about holding companies

It’s important to speak with a professional before making the decision so you fully understand the implications and addition work involved in setting up and running a holding company. So, we reckon the best way forward is to ask your accountant.

If you don’t have an accountant, or feel you aren’t making the most of your company set-up with your current accountant, we’d love a chat about how we can help. We offer a paid 1 hour, 1-2-1 consultation so you can ask simple questions and get clear, straightforward answers.