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What is a Holding Company? - YouTube
Channel: Accounting and Tax Academy by Tony D
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what exactly is a holding company also
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known as a parent company
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now you've probably heard or read how
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some of the bigger organizations such as
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facebook and google
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are structured with and use holding
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companies to their advantage
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and perhaps you are wondering can i do
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this for my business here in the uk
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in this video we will cover what exactly
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is a holding or parent company
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three ways a holding company could
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benefit your small business
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and finally what is the tax position of
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a holding company
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before we get started be sure to hit
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that subscribe button
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quality advice
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a holding company in accordance with the
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company's act of 2006
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section 1159 can be described and
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defined
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as follows number one it holds a
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majority of the voting rights in the
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undertaking
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also known as a subsidiary number two it
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is a member of the subsidiary and has
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the right to appoint or remove a
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majority of its board of directors
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and number three it has the right to
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exercise a dominant influence
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over the undertaking i.e the subsidiary
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now this is all very technical speak so
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what does this actually mean in simple
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english let's illustrate with an example
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you have a limited company called happy
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limited that trades in goods and
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services
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and earns revenue from its trading
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activities
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the present structure is that you
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personally own 100 of the share capital
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happy limited
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and you are also the sole director of
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the company
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all nice and simple so far now you've
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been advised for reasons we will cover
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later on in the video to create a
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holding company or a parent company for
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happy limited therefore happy holdings
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limited
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has been created to hold 100 of the
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shares in happy limited
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and it has become the parent company and
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happy limited has become what is known
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as a subsidiary company
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you as an individual will still be a
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director of happy limited but the
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difference now is that your shareholding
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will be in happy holdings limited
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in this example let's say it's a hundred
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percent you will also be a director of
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happy holdings limited and could even
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appoint another director or a
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non-executive director
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to create a board of directors happy
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holdings limited satisfies the
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definitions of the companies act 2006
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listed earlier
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and it holds 100 of happy limited and
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assuming the shares have full voting
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rights
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effectively exercises control over happy
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limited
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now this example is quite a simple one
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for explanation purposes
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but in reality there could be different
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variations of shareholdings voting
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rights and other permutations
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depending on your circumstances and
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objectives so we always recommend you
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seek professional advice here
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before we continue with today's video
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we're thrilled to be launching the
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accounting and tax academy membership
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site
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early next year we'll be posting
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downloadable resources tax tutorials and
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in-depth courses that you can't access
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and the best part is it's absolutely
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free to join head to the link in the
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description box below
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and register your interest today
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so the key question is why would you
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create and have a holding company for
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your business
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what are the potential benefits both tax
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and non-tax wise
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here are just three of many ways you
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could materially benefit from having a
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uk holding company number one is the
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safeguarding of assets with a tangible
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intangible or even surplus cash
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now this is a big one and whilst it's
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not directly a tax benefit
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it could prove crucial if your trading
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limited company business
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falls into difficulty and perhaps
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becomes insolvent
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by separating out key assets such as
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your website customer databases and any
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other tangible or intangible assets
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these could be saved from the clutches
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of insolvency and
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reverting to the crown in many of
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today's businesses intellectual property
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is becoming a key asset
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and that is something you will really
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want to protect
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number two is the acquisition and
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disposal of shares of other companies
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and businesses
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if part of your business growth strategy
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is to acquire whether in whole or part
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existing businesses that align with your
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target market
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product services or overall strategy
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then using a holding company structure
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can yield benefits
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this is also applicable if you wanted to
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buy your own non-uk based companies
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shares or assets
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and number three a holding company
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structure has certain tax breaks and
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advantages
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now these are elaborated upon in the
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next section
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a holding company itself is quite often
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just another limited company entity
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one of the key ways a holding company
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generates incoming funds is by way of
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dividends from its subsidiaries
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and these dividends are not subject to
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corporation tax in the holding company
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they are an exempt income and what's
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more if you have a uk holding company
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and a non-uk-based subsidiary trading
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company
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subject to certain conditions even
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foreign received dividends to the uk
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company
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can potentially be exempt from
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corporation tax secondly there is what
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is known as the substantial shareholder
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exemption on a disposal of shares by a
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holding company
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relating to capital gains tax in simple
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language
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if your holding company sold say all of
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the shares in a subsidiary trading
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company
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held for let's say 1 million pounds and
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made a capital gain of this amount
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it would be exempt from corporation tax
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in the holding company subject to
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satisfying the rules
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and conditions of the substantial
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shareholder exemption
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in comparison if you were to dispose of
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the same shares personally and made the
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same amount of capital gains
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you could potentially be subject to
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capital gains tax of up to 20 percent
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if you think that your business could
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benefit from a holding company structure
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and you're not sure where to start then
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head to the link in the description box
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below
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to get some information on how you can
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get started with this
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i hope this video has helped you gain
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more of an understanding of a holding
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company and some of its benefits and
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taking you one step closer to knowing
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your numbers
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as always let me know in the comments
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your thoughts on today's video or
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if there are any topics you'd like us to
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cover in the future finally
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be sure to like and subscribe as this
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really does help us to get our content
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out there
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this is tony d'angel for the accounting
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and tax academy
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thanks for tuning in
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you
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