What is a holding company? A small business guide

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Every business starts with an idea – except for that’s not always the case. Perhaps your winning business idea is to create a holding company – a company which exists solely to invest in subsidiary companies.

A holding company doesn’t produce any goods or services of their own, as its value comes from a strong business understanding and seeking out good investment opportunities.

You could invest in a series of similar companies and spread your market reach – or focus on diversifying your portfolio with different business opportunities across multiple trades and industries.

Whatever route you choose, keep reading to find out more about setting up a holding company.

Setting up a holding company in the UK

If you want to create a holding company, it’s important to note that it isn’t a type of legal business structure. This means that you’ll still need to choose between being a limited company or a sole trader. Whilst not a requirement, it makes sense that most holding companies are set up as limited companies.

Once you’ve settled on your business structure, you can start your holding company the same way you would set up any new business. But for a few things to remember, take a look at the below list:

  • come up with a name for your holding company and register it with Companies House (since 2015, it’s been allowed to use the word ‘holdings’ in holding company names)
  • appoint any company directors – holding companies can control any number of shares in their subsidiaries and will be responsible for multiple strategic business decisions
  • write your business plan – whilst this is an important step in any new business, holding companies with multiple subsidiaries can be complex, so a good plan is key to your success
  • check the tax implications for your business – one benefit of setting up a holding company is that any subsidiary companies owned by a holding can move assets between them without being taxed; however, your holding company’s income will still liable for corporation tax
  • open a bank account for your holding company – we have a list of the best business bank accounts here

Holding company structure

There’s not one simple holding company structure, it all depends on how you choose to invest and the subsidiary companies you control.

For example, your holding company could have three subsidiaries underneath it. You don’t even need to be the majority shareholder in any of the companies under you, though this will affect your level of control.

The more control you have of a company, the more responsible for strategic decisions you are. If you want your holding company to have more voting rights and strategic control, you’ll need to own more shares. If you’re the majority shareholder, you’ll ultimately have the final vote.

By choosing to invest fewer shares in a company, you’ll have to defer to the majority shareholder on certain business decisions.

This means that your holding company structure may be influenced by how much money you have to invest in shares. This can fluctuate, as you may have the opportunity to buy (or sell) shares in a company over time.

Holding company examples

You might be surprised how many holding companies are shareholders in household name companies. In some cases, you’ll know of the holding company name – but in others it might come as a surprise that there’s a shareholder company behind the scenes.

If you’re looking for some business inspiration, take a look at some of these well-known holding company examples and their subsidiaries.

  • you might not know the name Berkshire Hathaway, but it’s a holding company with assets in Duracell and Fruit of the Loom – as well as minor shares in the Coca-Cola Company, Goldman Sachs, and Apple Inc.
  • Apple Inc. itself is a holding company with subsidiaries including film and television studio Apple Studios and audio manufacturer Beats Electronics
  • Sony is a holding company controlling individual companies such as Sony Interactive Entertainment and Sony Music Entertainment
  • fans of BBC’s The Apprentice may know that Lord Alan Sugar’s holding company, Amshold, has shares in Tropic Skincare and Amstar Mediaone of the largest holding companies in the world is Unilever, which owns Dove and Ben & Jerry’s

Pros and cons of a holding company in the UK

Setting up a holding company isn’t for everyone. Keep reading to discover the pros and cons of setting up a holding company in the UK to make sure you’re doing the right thing for you and your business.

Tax benefits

One of the main benefits of having multiple companies under one holding company comes from the fact you can move assets between different subsidiaries tax-free. But it’s important to note that tax is a complex topic, so it’s always best to get advice from a professional if you’re not sure of anything.

Risk management

Keeping your businesses separate allows you to protect your assets. Any assets are held by the holding company, meaning that if one of your companies goes bankrupt, any other companies you own won’t face the repercussions.

Less liability

If you set up your holding company as a limited company, you’re more protected than you would be as a sole trader. Your company is considered legally separate from you as a business owner, so you won’t be faced with high personal debt if your business makes substantial losses.

Less transparency

The main disadvantage to running your business through a holding company is that it can be hard to show an accurate picture of your company’s financial health. Whilst this is manageable for internal affairs, this could be a problem when you need to show your finances – such as when finding investors.

Parent company vs holding company

When talking about holding companies, you may also hear about parent companies. While both types have subsidiary companies underneath them, the two have very different business practices.

Whilst a holding company invests in subsidiary companies, it doesn’t have any other business practices of its own. This means that the holding company itself isn’t producing any goods or services. All outputs come through the subsidiary companies.

Alternatively, a parent company controls and invests in subsidiary companies whilst still having their own business practices. For example, a parent company may produce and sell its own coffee. This company may then acquire a homeware company and sell coffee cups and accessories under the subsidiary company name.

Setting up a holding company – is it a good idea?

Before you start a holding company, you need to decide if it makes strategic sense for your business. Owning multiple companies can allow you to grow your market reach and customer base. Your companies can all be in a similar industry or trade, or you can invest in as many different areas as you like. It can be a great option for those keen to try new things.

However, investing in multiple businesses will mean you’re working with a wide range of shareholders, which can come with its own sets of challenges. You’ll also be working with different teams (perhaps in different industries) and the amount of control you have over your subsidiaries will depend on how many shares you own in them.

Before you make the decision to set up a holding company, it’s a good idea to consult with someone who knows the specifics of your company and finances, such as a financial advisor or accountant.

Have you set up a holding company of your own? Let us know what benefits you’ve experienced in the comments below.

More guides on starting a small business

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Rosanna Parrish

Rosanna Parrish is a Copywriter at Simply Business specialising in side hustles – as well as all things freelance, social media, and ecommerce. She’s been writing professionally for nine years. Starting her career in health insurance, she also worked in education marketing before returning to the insurance world.

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