A holding company is a grouping of at least two companies, with a parent company (called the " holding company ") holding all or part of the capital of a daughter company (called the "subsidiary"). It brings together a number of associates wishing to take part in the running of several businesses.
A distinction is commonly made between holding companies whose activity is limited to holding the shares of their subsidiaries (passive holding companies) and those providing them with services to contribute to their smooth running (active holding companies).
Organizing your estate in this way can help you benefit from numerous advantages in terms of passing on your wealth, optimizing your tax situation and controlling your assets.
Setting up a holding company is almost the same as setting up a conventional company, although its corporate purpose must specify that it is intended to hold shares in other companies.
The first step is to choose your legal status. No particular constraints are imposed, and it is possible to opt for a SA, SAS or SARL, as long as it is subject to corporation tax.
The SAS is often preferred because the dividends it pays out are not subject to social security contributions.
As with a conventional company, you will need to draw up the complete articles of association , then publish a notice of incorporation in an approved legal gazette. The complete file can then be filed with the Greffe du Tribunal de Commerce (Commercial Court Clerk's Office), depending on the location of your company's registered office.
You can then set it up directly by contributing shares in other companies, whether from another individual or a legal entity. Once a holding company has been set up, it is customary to quickly buy back some or all of the shares in another company.
To avoid any suspicion of abuse of rights, make sure you assign a real role to your holding company, other than tax optimization. The help of a chartered accountant, a lawyer or an asset management consultant can prove invaluable in putting together your financial package in the best possible conditions.
If you wish to build a holding company "from the bottom up", i.e. by contributing new assets to the holding company through theacquisition of capital from another company, you will need to appoint a contribution auditor.
To create a holding company "from above", i.e. when several partners contribute their capital to form the holding company's share capital, a contribution agreement must be drawn up.
Once again, it is generally advisable to call on a professional to draw it up.
If you decide to sell your capital after it has been contributed, at least 50% of the proceeds must be reinvested in one or more other companies.
If you don't, you may be liable to a tax reassessment for abuse of rights.
Setting up a holding company offers a number of significant tax advantages. Under the parent-subsidiary regime, the parent company is 95% tax-exempt on the amount of investment income it receives from its subsidiary.
If the parent company holds at least 95% of its subsidiary's capital, tax consolidation enables the parent company and its subsidiary to be taxed together.
This makes it easier to offset the losses of some companies against the profits of others. Above all, dividends paid by subsidiaries to their parent companies are fully tax-exempt.
The holding company structure makes it easy tobring in new partners without losing control of your group. For example, you can grant up to 49% of the shares in the parent company and in each of your subsidiaries to other investors, while retaining a majority share in decision-making.
It is also possible to pool the functions required for each company's operations, such as accounting and finance.
The creation of a holding company must have a genuine project financing purpose, other than tax savings. Otherwise, the beneficiaries of the arrangement may be subject to tax reassessment.
In many situations, setting up a holding company is a good way to benefit from tax and financial exemptions, and to helpoptimize your assets.
Written by our expert Paul LASBARRERES-CANDAU
May 3, 2018
