Incorporating a company requires careful planning. This article provides a step-by-step guide on how to…
7 Advantages of a Holding Company
Creating a holding company in Australia delivers a range of strategic & commercial advantages. In this article we will examine 7 benefits of Australian holding companies.
There are many different ways to structure a company in Australia. If you’re currently assessing company structure options, you may have considered setting up a holding company. Before setting up a holding company in Australia, however, it’s best to understand how they work and the benefits they deliver.
Establishing a holding company in Australia can provide a series of advantages depending on the size of your company, including risk minimisation, centralised corporate control, and flexible growth structures.
In this article, Fullstack will explain what a holding company is and present seven key benefits that a holding company provides.
What is a Holding Company?
A holding company is a company created with the specific purpose of purchasing and holding shares in other companies. In most cases these companies are subsidiaries of the holding company itself. Rather than actually provide services to customers or create and sell products, holding companies own the assets that are used by subsidiary companies.
Many business owners choose to set up holding companies in order to structure their business. Creating subsidiary companies and a holding company can compartmentalize business structures and provide risk protection benefits. Growing businesses or businesses in the process of scaling often set up holding companies to streamline operations.
7 Key Benefits of a Holding Company in Australia
We’ll proceed to break down the 7 key benefits of setting up a holding company in Australia:
1. Safeguard Assets
Holding companies can be used to hold and protect the assets of any business. Holding companies are able to hold property, intellectual property, and equipment. Valuable assets held by a holding company are protected from liabilities that subsidiary companies may incur, such as creditors. Subsidiary companies handle day-to-day operation and trading responsibilities autonomously.
2. Minimise Risk
Holding companies generally can’t be legally pursued for the responsibility of subsidiary companies. A holding company holds valuable assets for a subsidiary company as a separate entity — this significantly reduces the risk of asset loss in the case that a subsidiary company becomes insolvent or performs poorly.
It’s important to note that if a subsidiary company become insolvent, it’s likely that the holding company will suffer financial losses. In some circumstances it’s possible that a holding company can be found liable for poor subsidiary company performance it if can be determined that directors were aware of performance issues.
3. Better tax planning opportunities
Setting up a holding company can potentially minimize the amount of tax that the holding company and subsidiary companies pay collectively. Holding companies, for example, can be specifically structured as part of a tax minimisation strategy. It’s also possible to establish a holding company in a country that offers lower tax rates.
New tax laws introduced in 2016 limit the total amount of tax that can be saved due to moving holding companies to international jurisdictions.
4. Centralize Company Control
The subsidiary companies for which a holding company holds assets are typically managed by the directors of the holding company itself. This allows company directors to centralize the management structure that governs their business and can assist with overall business performance.
Establishing a holding company can potentially provide subsidiary companies with favorable financing terms when compared to standalone companies. It’s also possible for holding company directors to follow debt-structuring practices that benefit subsidiary companies.
5. Centralise Assets
A holding company is the centralised holder of all assets within a group. This allows holding companies to manage these assets in a cohesive manner that benefits the group collectively, minimizing the amount of time subsidiary companies must invest in asset management.
6. Growth and Development Flexibility
Centralizing the management of group assets allows the directors of a holding company to diversify in a more efficient manner. By holding valuable assets in a holding company, operating companies are able to invest in new ventures and exit ventures without risk to group assets.
7. Business Continuity
Establishing a holding company presents succession planning benefits — a holding company with a board of directors allows groups of businesses to adapt to the loss or retirement of key people (particularly at the trading company level).
Setting up a holding company can reduce the total amount of tax a group of companies must pay, as well as delivering greater control over group assets. If you’re considering setting up a holding company, get in touch with Fullstack for company setup expertise today.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, agencies and entrepreneurs.