Maclean Partners, Chartered Accountants, Financial Planning, Townsville, Queensland

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The benefits of creating a holding company

January 1, 2022

The benefits of creating a holding company

 

Once your business gets to a certain size and turnover, there's real value in assessing the company structure and how to make tings more tax-efficient.

Setting up a holding company is one way to start creating an ordered and effective group structure.  And by moving any surplus cash up from your trading company to your new holding company, you protect your profits and can, potentially, reduce your tax liabilities.

Separating your trading and investment

When all your surplus cash, profits and personal shares are wrapped up in one single company, that can often cause problems further down the line.  With all your eggs in one basket, there is an inherent risk built into your company structure and, in a worst-case scenario, if the business fails, you could end up losing everything.

But with separate trading and holding companies, held within a defined group structure, you can begin to protect your company and your own personal interests.

To start the process of creating a group structure:

  • Create a new holding company - a holding company is the 'parent' at the top of your group structure.  This entity is entirely separate to the trading business where your shares are held and will sit at the very top of the structure, with your trading company and any other subsidiaries beneath it.
  • Transfer your trading shares - the next step is to transfer your existing trading company shares over to the holding company, in exchange for shares in the holding company.  This gives you control over the holding company, but also enough share rights to also control the trading business as well.
  • Move your profits - excess cash can be moved from the trading company to the holding company in a tax-efficient manner, which protects any profits by ring-fencing within your newly created holding company.  And if the trading company were to fail, for whatever reason, these profits are protected and safe.

As your business interests grow, you can add further subsidiary companies to this basic group structure, presenting an organised structure to the local revenue office and also reducing the potential risk within the wider business.

Talk to us about setting up a group structure

If you want to protect the long-term future of your business and investments, we can help you create a robust group structure - safeguarding the future of your business and the profits you have built up.

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