Is a holding company right for your business?

A holding company is essentially a company that owns shares in another company – typically the main trading business. It doesn’t carry out day-to-day operations itself, but it sits at the top of a group structure and owns one or more subsidiaries beneath it.

This structure can offer a number of advantages, particularly for growing businesses or those looking to manage risk, protect assets or prepare for sale or succession.

When to set up a holding company

There are two main routes: at incorporation, or later as part of a group reorganisation.

If you're starting out and already have medium-to long-term plans, perhaps to invest in assets outside the main trade, it can be cost-effective to set up a group structure from the beginning. In this case, the holding company is formed first, followed by the trading company as its subsidiary.

If you’ve already been trading for a while, it’s still possible to restructure. For example, you might want to set up a holding company now to support your future goals. This can be done through a share-for-share exchange, where the new holding company acquires the shares in your existing business. The original shareholders receive shares in the holding company in return, preserving the ownership split.

HMRC tax clearance is strongly recommended before making this kind of change. Provided you’re doing this for genuine commercial reasons, you may be able to restructure without triggering a Capital Gains Tax liability.

Myth-busting: A holding company doesn’t need to include the word ‘holding’ in its name. It just needs to own at least one subsidiary.

Why use a holding company?

The main driver for using a holding company is usually asset protection. It allows you to ringfence key assets, such as property, investments or surplus cash, away from the trading company, safeguarding them in case of future claims or financial issues.

You might also use a holding company if:

• You’re preparing to sell your business and want to separate out non-trading assets that could affect eligibility for tax reliefs.
• You’re planning succession and want to restructure shareholdings or introduce new shareholders.
• You’re considering selling a subsidiary. If conditions are met, the sale proceeds could be tax-free under the Substantial Shareholding Exemption.
• You want to pass dividends between companies in the group without creating extra tax charges.
• You’re looking at floating the business, such as on the AIM market.

A holding company gives you flexibility, control and options for future planning, but it’s important to get the structure right, and to seek advice at the right time.

Need help?

Every business is different, and there’s no one-size-fits-all answer. If you're thinking about setting up a holding company, restructuring your group, or protecting valuable assets, we’re here to help.

Get in touch with your usual Larking Gowen contact or email enquiry@larking-gowen.co.uk.

James Rix