In the business world, some terms and phrases can confuse even the most seasoned business people. One term that can cause a bit of confusion is “holding company”. While the concept of a parent company isn’t too difficult to grasp, understanding the nuts and bolts of how they work is a bit of a different story.
Holding companies play a significant role in the business landscape of the UK, with Virgin, TUI and City Football Group all being prominent holding companies. If you’re considering forming a holding company and are curious about what’s involved, you’re in the right place. As an entrepreneur, understanding how to set up a legal holding company can help protect your assets and grow your business.
This guide will provide an overview of what a holding company is and explain why it’s an important tool for entrepreneurs. We’ll also share tips on correctly forming a holding company, so you can start leveraging its advantages as soon as possible.
Let’s get started.
Jump to what you want to know:
- What is a Holding Company?
- Examples of Holding Companies
- Advantages of Starting a Holding Company
- Potential Disadvantages of Starting a Holding Company
- How to Set Up a Holding Company in the UK
- Form Your Holding Company Today with Mint Formations
What Is a Holding Company?
Before we jump into the specifics of forming and running a holding company, it’s good to get to grips with the basics. A holding company is a unique type of company as it deals specifically with assets and investments rather than providing goods and services.
These assets and investments can include the following:
- Shares in other companies
- Private equity funds
- Public stocks
- Hedge funds
- Bonds
- Trademarks and copyrights.
Holding companies are usually limited by shares, and their primary purpose is to own assets in other companies. Unlike a traditional company, a holding company doesn’t have any trading operations or activities.
Put simply, a holding company owns stock in other companies rather than producing goods or services. They are often used to manage a group of subsidiaries and will also usually oversee their operations. Holding companies are often referred to as parent companies.
The Companies Act 2006 outlines that for a holding company to qualify a company as a subsidiary, it must:
- Have more than 50% of the voting rights in the subsidiary
- Be a member of the subsidiary
- Have the right to appoint/remove a majority of the company’s board of directors.
- In agreement with other shareholders, it solely controls a majority of the voting rights.
Examples of Holding Companies in the UK
As you can see, a holding company is a type of business entity that owns assets and stocks of other companies. Still, one of the best ways to understand holding companies is to look at examples.
In the UK, there are numerous well-known examples of holding companies that own and oversee the operations of several different subsidiaries. Holding companies in the UK include:
- Eurostar International Group (Travel)
- McClaren Group (Motoring)
- Octopus Group (Energy)
- Great Western Holdings (Railways)
- Amshold Group Limited (Alan Sugar’s holding company).
One of the most prominent holding companies globally is Unilever. Unilever is a multinational consumer goods company that is headquartered in London. It’s one of the world’s largest and most well-known holding companies, with a diverse portfolio of subsidiaries in various industries, including food, personal care, and home care.
Some of the famous brands that Unilever owns include Dove, Lipton, and Ben & Jerry’s. Unilever operates in more than 190 countries and serves millions of consumers worldwide.
Advantages of Starting a Holding Company
Now that you’re up to speed with what a holding company is, you may be wondering about the benefits of forming one. The good news is that there are several benefits to starting a holding company in the UK, including:
Separation of Ownership and Control
Forming a holding company can be an effective way for business owners to have the best of both worlds. It allows them to retain control and ownership of a company while freeing up time and resources by leaving the management of its daily operations to experienced professionals.
This separation between governance and management can protect owners against personal liability, making it easier for them to separate their finances from the business.
Simplification of Ownership Structure
Holding companies can be a great way to simplify ownership structure when it comes to businesses. Rather than trying to manage multiple subsidiaries across different areas, you can bring them all into one entity, making it much easier to stay organised and make quick, informed decisions.
It’s an efficient way to consolidate your business operations, especially if the group has expanded quickly.
Flexibility in Corporate Decision-Making
A holding company is an entity that owns other companies and investments. It gives the parent company control over decision-making over its subsidiaries, which can operate in various industries or countries worldwide.
This can be incredibly beneficial as it grants greater flexibility to the parent company, meaning they can manage multiple enterprises from one place without compromising on the effectiveness of individual decisions made by each separate subsidiary.
This is a great way for larger corporations and businesses to ensure smooth operation and consistent results on a global level, increasing their potential to remain profitable and expand further into new markets.
Tax Benefits
Setting up a holding company has many unique advantages for businesses looking to maximise tax efficiency. By shifting profits and losses between subsidiaries, the holding company structure offers opportunities to reduce taxable income.
Plus, businesses can take advantage of varying tax rates in different jurisdictions. In some cases, it may be possible to access corporate tax rates substantially lower than those otherwise available.
Potential Disadvantages of Starting a Holding Company
While the benefits of forming a holding company are clear, there are also some potential disadvantages, such as:
Increased Complexity and Cost
Setting up and managing a holding company can be more complex and costly than operating a standalone business. This may involve additional legal and administrative fees and the need to comply with additional reporting and compliance obligations.
Potential for Conflicts of Interest
There is also a risk of conflicts of interest between the holding company and its subsidiaries. This is particularly true if the holding company is controlled by a small group of shareholders who may have different interests than the shareholders of the subsidiaries.
How to Set up a Holding Company in the UK
While running a holding company can be more complicated than a regular business, setting one up is no different to setting up a company limited by shares. Here’s what you need to do to set up a holding company in the UK:
- Select your business structure. It is important to note that “holding company” is not a legal structure in the UK but a term used to describe a company that holds shares of other companies. The most common way to set up a holding company in the UK is to incorporate it as a private limited company.
- Choose a unique company name and register it with Companies House. This can be done online or by mail. Until 2015, using the word “holding” or “holdings” in a company name was considered sensitive by Companies House, but it is now acceptable.
- Appoint directors for the holding company. These individuals will be responsible for managing the company and making strategic decisions.
- Obtain any necessary licenses or permits. This may include licenses for specific industries or certifications required by law.
- Draft and file memorandum and articles of association with Companies House. These articles will outline the purpose and structure of the holding company.
- Register for taxes, including VAT and corporation tax. You will need to obtain a Unique Taxpayer Reference (UTR) and register for VAT if the holding company’s annual turnover exceeds £85,000.
- Open a bank account for the holding company. This will enable the holding company to receive and manage its financial transactions.
Form Your Holding Company with Mint Formations Today
Mint Formations offers a range of fast and efficient online company formation services, allowing you to register a limited company quickly. To get started, you’ll simply need to provide us with the following information:
- Desired company name
- Registered office address
- Standard Industrial Classification (SIC) codes
- Director’s details (at least one required)
- Shareholder’s details (at least one required)
- Share capital information, including details of shares issued to shareholders
- Information about individuals with significant control over the company.
(If you’re unsure about any of this information, you can contact the Mint Formations team or check out our blog or knowledge base.)
Once your application is submitted, we will send it to Companies House. If everything is in order, your new company will be registered, and we will send you an email confirmation with digital copies of your incorporation documents.
Start your holding company today with Mint Formation’s formation packages that start from just £12.99. If you have any questions about the process, don’t hesitate to contact us, and we’ll do everything we can to help.
