A holding company is a type of business which specialises in assets, investments and management of other companies. It is also referred to as a parent of Holdings Company. In the UK, in order to start a holding company, the new company needs to own a majority (more than half) of the issued share capital in its subsidiary within 3 months.
In certain circumstances a holding company might be responsible for supervising and managing other companies. It can be an additional task or a substitute to holding shares and receiving dividends from their share holdings. These are the sole functions a holding company will perform. No other type of business activity will be conducted.
One of the main advantages of running a holding company is the tax savings potential it has. The majority of share disposals and dividend payments are exempt from tax.
A holding company will also be exempt from VAT taxable supplies if its functions include:
- The acquisition of shares in subsidiaries
- Receiving dividend payments from these shareholders
- Defending itself and its subsidiaries from takeovers
- Disposing of shareholdings in subsidiaries
The above functions are not considered ‘taxable supplies’ in the eyes of HMRC, therefore, any holding company can operate with these basic functions alone without having to pay for VAT. It is impossible for a holding company to voluntarily register for VAT. However, when a holding company provides or intends to provide, taxable supplies to a subsidiary, it will be allowed to voluntarily register for VAT.
A holding company will need to register for VAT if its annual taxable income exceeds £82,000.
According to the Companies Act 2006, your business qualifies as a holding company if:
- The parents company holds more than 50% of the voting rights in the subsidiary
- The parents company is a member of the subsidiary and has the right to appoint or remove a majority of its board of directors
- The parents company is a member of the subsidiary and, in accordance with an agreement with other shareholders, it alone controls a majority of the voting rights in the subsidiary
If you want to set up a holding company and you believe you fulfil all of its legal requirements, you can contact us today at PNGFormations and we will guide you through the process in a simple and quick way. A holding company can be set up in an exactly the same way as any other company limited by shares. This means, you can have it up and running within just 3 hours of sending us all the documents required! You will need the following information:
- Company name
- Registered office address
- Directors’ details (minimum of one)
- Shareholders’ details (minimum of one)
- Memorandum and articles of association
- Share capital - details of the shares issued to shareholders
- Upporting documentation for the use of sensitive words in the company name
Once you send us the information required, we will submit your application to Companies House. We will then send you the confirmation with the copies of your incorporation documents. If you want to find out more about setting up a holding company, contact us today and our experts will answer all your questions.