Should you set up a holding company?

A holding company structure can be a powerful asset protection and risk management tool for business owners. It is better to think of it as moving from a single company structure to a group structure. Although a Group Structure may sound like something that only big national businesses would do there are some significant advantages for small business owners.

A group is formed when there is a holding company that you own as the overall business owner. This holding company then owns the majority, or all, of the shares in your trading company and any other asset holding companies.  The important thing is that the holding company is at the top, rather than holding everything in the same trading company. A group structure is very effective for safeguarding any of the following:

• Fixed assets such as plant and machinery, IT equipment, website domains
• Commercial or residential property
• Intellectual property, patents and trademarks
• Investments
• Cash reserves

The holding company type structure can also have the benefit of allowing you to operate multiple trading businesses from separate limited companies. This can be useful for new ventures, so that the existing business doesn’t take on all the risk of the new project.  In the current climate we can see many businesses toying with diversifying and looking at alternative business projects to help them and their staff survive now and grow on the other side.

When properly structured, each subsidiary company of the holding company would have limited liability and not be liable for any liabilities of the other companies in the group (except for any money loaned between them). The group also gives the companies access to a few additional perks, including ability to share losses within the group.  So, a new venture can be loss making, the existing business has no risk financially to the new venture but can use those losses to reduce its own tax bill.