What is a holding company?
A holding company is a type of business that focuses on managing assets and investments rather than selling goods or services to generate profit. It typically operates as a company limited by shares, and its primary role is to own assets in one or more other companies. These assets can include shares, intellectual property, or real estate. Holding companies are designed to oversee and manage these investments, rather than engage in direct business operations or production.
Holding companies not only manage their assets and investments but also oversee other companies. They may supervise and provide strategic guidance in addition to holding shares and earning dividends. However, they usually do not engage in trading or other business activities.
The companies that holding companies own are “subsidiaries.” In the UK, a holding company becomes a “parent” company when it owns over 50% of another company’s shares. This structure establishes control and strategic management while focusing on asset management and supervision.
The legal requirements of a holding company
- It holds more than 50% of the voting rights in the subsidiary.
- It is a member of the subsidiary with the authority to appoint or remove a majority of the board of directors.
- It is a member of the subsidiary and, through an agreement with other shareholders, has sole control over a majority of the voting rights in the subsidiary.
Tax liabilities of a holding company
One of the key advantages of a holding company is the potential for tax savings, as many share disposals and dividend payments are tax-exempt.
If the holding company owns a “substantial shareholding,” meaning at least 10% of the ordinary shares in a subsidiary for a continuous period of 12 months within the two years prior to the disposal, it can sell these shares without being subject to capital gains tax.
This tax relief, known as the Substantial Shareholding Exemption (SSE), applies if both the holding company and its subsidiary actively operate as businesses for at least 12 months before and after the disposal.
A holding company is also exempt from VAT on taxable supplies if its primary activities include:
- Acquiring shares in subsidiaries
- Receiving dividend payments from these shareholdings
- Defending itself and its subsidiaries against takeovers
- Disposing of shareholdings in subsidiaries
HMRC does not consider these functions as ‘taxable supplies’. Therefore, a holding company engaged solely in these basic functions will not be liable for VAT and cannot voluntarily register for VAT.
However, if the holding company provides or plans to provide taxable supplies to a subsidiary – such as supervision and management services – it can choose to register for VAT voluntarily. Compulsory VAT registration applies if the holding company’s annual taxable income exceeds £90,000 (the VAT registration threshold as of 1 April 2024).
Can I use the word ‘holding’ in a company name?
On 31st January 2015, changes were made to the rules regarding company and business names. The word ‘holding’ (or ‘holdings’) is no longer classified as a ‘sensitive’ word. As a result, you can now include this term in your company name without needing approval from Companies House.
How do I register a holding company?
A holding company can be established in the same manner as any other private company limited by shares. It must be legally incorporated at Companies House and comply with strict statutory filing requirements.
Startxpress offers a variety of online formation packages that allow you to register a company limited by shares within just 24 hours. The application form will require the following information:
- Company name
- Registered office address
- Standard Industrial Classification (SIC) codes
- Directors’ details (minimum of one)
- Shareholders’ details (minimum of one)
- Share capital – details of the shares issued to shareholders
- Information about people with significant control
Companies House will receive your application form electronically. If all the details are accurate, Companies House will register your new company within three working hours. You will receive a confirmation email with digital copies of your incorporation documents. If you need hard copies of incorporation documents, Companies House will mail them to your registered office within 24 hours of incorporation.
You can track the progress of your application using our Next Generation Company Operating System. After incorporation, this system also allows you to manage and update your company details online, file and update annual confirmation statements (formerly the annual return), and report any changes to Companies House.
Do you have any other questions?
So, a holding company is a business entity created to own and control other companies, known as subsidiaries. It does not usually produce goods or services itself but instead manages and oversees the assets, shares, and management of its subsidiaries. This structure allows for streamlined administration and risk management while protecting assets.
For more insights on holding companies, visit the Startxpress Help Center and Blog. If you need further help, reach out at support@startxpress.io!
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