{"id":1716,"date":"2022-01-12T05:29:41","date_gmt":"2022-01-12T05:29:41","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1716"},"modified":"2025-07-02T00:42:06","modified_gmt":"2025-07-01T23:42:06","slug":"advantages-holding-company","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-structures\/advantages-holding-company\/","title":{"rendered":"What Are the Advantages of a Holding Company?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">Running one company can be hard enough. So why would anyone want to own multiple companies without any obvious reason? You may wonder what the purpose of holding companies is and if the concept has any relevance for your business. <\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">This article will first explain what constitutes a holding company. It will then explain the advantages a<\/span>nd disadvantages <span style=\"font-weight: 400\">of using a holding company to structure your business.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What is a Holding Company?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">As you may know, companies are their <a href=\"https:\/\/legalvision.co.uk\/corporations\/benefits-of-incorporation\/\">own legal persons<\/a>. So, in addition to being able t<\/span>o <span style=\"font-weight: 400\">sue others (or be sued) and enter into contracts, they can also own assets. This includes the ability to <a href=\"https:\/\/legalvision.co.uk\/corporations\/shareholders-rights\/\">own shares in other companies<\/a>, just like you may own shares in your own company.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Holding Company vs Parent Company&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A holding company is a company that usually does not trade itself but has a controlling stake in another company. A company will have a controlling interest if it has, at a minimum, more than 50% of the voting rights in the other company.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">As an example, suppose there are two companies: HoldCo Ltd and NewCo Ltd. If HoldCo Ltd owns 51% (or more) of the voting shares, it may be a holding company.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">HoldCo will also be a holding company if it has:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">the power to appoint or remove a majority of the board of directors; or&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">an agreement with the other shareholders to effectively control a majority of the voting rights.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Many people use the terms \u201cholding company\u201d and \u201cparent company\u201d interchangeably, but the practical distinction is that a holding company does not trade, while a parent company often does.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 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       } else {            triggerPostRender();        }    } );} );\n<\/script>\n<\/div>\n<\/div>\n<div id=\"content-next\"><!-- scroll anchor --><\/div>\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Corporate Structures<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">In the above example, NewCo Ltd would become a subsidiary company of HoldCo\u2019s.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Assuming NewCo is a trading company, it is possible for t<\/span>hem <span style=\"font-weight: 400\">to be a parent company over a third company, BabyCo.<\/span> This is<span style=\"font-weight: 400\"> if NewCo has a majority of voting shares or has effective control over BabyCo&#8217;s appointment of directors.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">All three companies are part of the same single \u201ccorporate structure.\u201d <\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">A corporate structure refers to all the companies sitting underneath the holding company.&nbsp;&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400\">It is common to refer to the holding company as sitting atop the corporate structure. Indeed, it is the ultimate corporate owner of all the companies underneath it.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Large businesses like Apple or Volkswagon often have complex corporate structures with numerous parent companies, each with their own subsidiaries. At the top is the holding company, which will own a majority of all the shares in each of the subsidiaries.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What About Shell Companies?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\"><a href=\"https:\/\/legalvision.co.uk\/corporations\/what-is-a-shell-company\/\">Shell companies<\/a> are similar to holding companies in that they do not trade. However, unlike holding companies, which we can think of as the \u201cultimate parent company\u201d in a business group, shell companies tend to have more singular functions. For example, their function may be to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">raise debt; <\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">hold particular assets; or&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">move money.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Advantages of Holding Companies&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">There are three overlapping advantages to the use of holding companies. They are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">organisational efficiency<\/span>;<\/li>\n\n\n\n<li><span style=\"font-weight: 400\">limited liability; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">tax efficiency.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">To help make sense of these advantages, we will use a fictional example.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">S<\/span>uppose y<span style=\"font-weight: 400\">ou are the proud owner of a very successful business, BevCo Ltd, which makes delightful beverages that it ships around the world.&nbsp;You have decided to branch into the delivery and logistics industry so you can save costs on distributing your product.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Creating a new company will help you limit your original business\u2019 liabilities, so you create DistributeCo Ltd.&nbsp;<\/span><br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Organisational Efficiency<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Holding companies typically emerge when there are a group of at least two other companies that share common ownership. Creating a single company that owns the rest makes managing the group of companies easier.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">While you could exercise your rights as a majority shareholder in your individual capacity separately for both companies, it is often easier to create a single legal entity (\u201cHoldCo\u201d) to exercise ownership rights itself. Given that you are the majority shareholder for each company, it does not change your position by operating through a separate legal entity.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">This is particularly advantageous if you are looking to sell part of your business later. Separating the core components of your business into their own legal entities makes it much easier to sell<\/span>. Indeed, you can avoid <span style=\"font-weight: 400\">having to package off part of the business at the point of sale.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Likewise, shared assets, such as land or machinery, may be advantageous for the parent company to retain its legal title.&nbsp;&nbsp;<\/span><br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Liability<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">All companies are their own legal person and benefit from the principle of <a href=\"https:\/\/legalvision.co.uk\/corporations\/limited-vs-unlimited-company\/\">limited liability<\/a>. So, company owners will not be responsible for the company\u2019s debts beyond what they have paid for the shares.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">C<\/span>onsidering<span style=\"font-weight: 400\"> your company\u2019s liabilities<\/span>,<span style=\"font-weight: 400\"> you could feasibly borrow substantial sums of money for one company to expand. For example, should DistributeCo have a hard time getting off the ground, a lender cannot come after your successful company provided the liability remains completely with the other company.&nbsp;<\/span><\/p>\n\n\n\n<p>Additionally, as your business grows, creating a holding company can effectively ensure your business\u2019s assets are properly apportioned across subsidiary companies. So, if one element of your business runs into trouble, your other business assets will not be at risk.&nbsp;<\/p>\n\n\n\n<p>For example, suppose that you are expanding your business into another country because you think there is a strong opportunity for growth. However, this is not without risk. Therefore, it would make sense to create a new company that would own the assets it needs to operate in the new country. Likewise, you can create a separate third company \u2014 your holding company \u2014 that owns shares in both companies. The effect is that if the business venture in the new country fails, only the assets owned by that company will be at risk.&nbsp;<\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">In practice, however, this is not always the case. Nonetheless, you can structure borrowings in such a way as to benefit from limited liability.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Tax Efficiency&nbsp;<\/span><\/h3>\n\n\n\n<p>Additionally, i<span style=\"font-weight: 400\">t may be advantageous to have the holding company headquartered in a more tax-efficient country if you operate in multiple jurisdictions.&nbsp;<\/span>Likewise, y<span style=\"font-weight: 400\">ou can channel profits and offset losses by moving money around your corporate structure. All the while your holding company will manage things from the top.&nbsp;<\/span><\/p>\n\n\n\n<div  class=\"box box--icon box--warning\">\n    <p>This is a complex area of law. If you are seeking the most tax efficient way to structure your businesses, it is best practice to speak to a lawyer.<\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Disadvantages to a Holding Company&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The simple fact is that with each company you incorporate, the administrative burden grows in step.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Each company must prepare its own accounts and annual reports. In addition, each company\u2019s director(s) will owe the company certain legal duties, regardless of if the director(s) sits on another company\u2019s board. This can create certain conflicts of interest, especially where a subsidiary\u2019s ownership differs from the holding company (i.e. where there are minority shareholders).&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">From a strictly theoretical perspective, it is nice to think of each company\u2019s assets and liabilities as being legally separate. However, in practice, things are often different. For example, suppose you wish for a bank to lend DistributeCo Ltd a large sum of money. In that case, the bank will often demand that the holding company (as well as any affiliated companies) guarantee the loan.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For instance, the bank could demand that you pledge HoldCo\u2019s shares in both companies as security for the loan to the one company. That is less than ideal.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">As you can see, the larger a business\u2019 corporate structure, the more it will spend on accounting and legal fees. You should therefore determine if your business is in a position to justify the added complexity and cost of creating a business group headed by a holding company.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A holding company is the ultimate parent company of a group of companies. It does not trade itself but instead is a vehicle to consolidate ownership in a collection of interrelated, though legally distinct companies. The use of a holding company can provide you with organisational and tax efficiencies<\/span>. Likewise, it limits <span style=\"font-weight: 400\">the <\/span>liabilities and assets of<span style=\"font-weight: 400\"> each company. However, the administrative burden of owning a group of companies is substantial. Therefore, your business will need to have enough growth potential to justify it.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help managing a group of companies, our <\/span><a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\"><span style=\"font-weight: 400\">experienced corporate lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions&nbsp;<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1641964569041\"><strong class=\"schema-faq-question\"><strong>What is a holding company?<\/strong><\/strong> <p class=\"schema-faq-answer\">A holding company is like any other company in that it is legally distinct and can own property, including shares in other companies. However, a holding company does not typically trade itself and instead owns the shares to multiple companies.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1641964585106\"><strong class=\"schema-faq-question\"><strong>What are the advantages of a holding company<\/strong>?<\/strong> <p class=\"schema-faq-answer\">As with incorporating a business from a sole trader into a company, the main benefit is limiting liability while improving organisational and tax efficiency.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/1716\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-structures\/advantages-holding-company\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What Are the Advantages of a Holding Company?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Running one company can be hard enough. So why would anyone want to own multiple companies without any obvious reason? You may wonder what the purpose of holding companies is and if the concept has any relevance for your business. This article will first explain what constitutes a holding company. It will then explain the<a href=\"https:\/\/legalvision.co.uk\/business-structures\/advantages-holding-company\/\">Continue reading <span class=\"sr-only\">&#8220;What Are the Advantages of a Holding Company?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":630,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1001,2015,4641,1800,1379,3825","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[36],"tags":[342,345,346,347,348],"class_list":["post-1716","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-limited-liability","tag-holding-company","tag-parent-company","tag-subsidiary-company","tag-tax-efficiency"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Advantages of a Holding Company in England and Wales | LegalVision UK<\/title>\n<meta name=\"description\" content=\"A holding company is a company that usually does not trade but has a controlling stake in another company. 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