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Advantages of a Holding Company: when and why to set up a Holding Company

The advantages of a Holding Company may not seem very clear to the partners of a company. In many cases, the partner (especially if he is not an employee) is often only concerned about his profits: how much, when and how he will receive his income. The performance of the company or of the group of companies of which he is a member only affects him to the extent that it does not result in a loss or a reduction of his profits. However, this is not the way to manage a company, especially if it is a family business.


In these cases, the priority of the partners must be the continuity of the business and its expansion; and in this sense, the creation of a Holding Company, when there are several companies, becomes a magnificent solution to avoid conflicts. In the infographic above you can see the advantages of a Holding Company. Do you want to know all about it? Don’t miss this article: it will interest you.

What is a Holding Company and what types are there?

A Holding Company is simply a trading company, which can be a limited or public limited company and which holds the ownership of the shares of the other companies in the group.

The Holding Company, on the other hand, has the following characteristics:

  • Its corporate purpose is the holding of shares or holdings in other companies.
  • It must have an economic activity consisting of managing holdings in other companies.
  • The holding company’s shareholding in the investee must be at least 5% of the capital.
  • The Holding Company must have its own human and material resources.

With regard to the types of Holding Company, we can distinguish the following:

  • A pure holding company is one in which the only activity is the holding of shares or holdings in subsidiary companies.
  • Mixed Holding Company in which the activity is the holding of shares or holdings and the provision of services. For example, it can be central administration, accounting and legal services.

How is a Holding Company established?


As we have seen in the previous section, the Holding Company is a trading company, so in order to set it up, a new company can be created or an existing one can be used.

To create a Holding Company from a new company, the following steps must be taken:

  • Apply for the negative certificate of denomination at the Mercantile Register.
  • Contribution, on the part of the shareholders, of the shares or holdings they own to the share capital of the new company.
  • Approval at the General Meeting of Shareholders of the transfer of shares or holdings.
  • Drafting of articles of association, which must be detailed:
    • The activity of the holding company, which will be the holding of shares or holdings.
    • The regulation of how the company is to be controlled and managed.
    • The way in which dividends will be distributed.
    • The conditions of purchase and sale in the event of the entry of new shareholders.
    • Agreements concerning the management of the shares or holdings.
  • Attendance at the signing of the company’s incorporation before a Notary Public.
  • Settlement of the corresponding taxes and filing of the deed at the Mercantile Registry.

In the event that the Holding Company is created from an existing company, the Holding Company must increase its capital and issue newly created shares or units.


What are the advantages of a Holding Company for the partners?

Broadly speaking, a holding company has three main advantages: security, a solid and reliable structure and lower tax costs. When a group of partners owns several companies, the situation can (and often does) generate conflicts that can affect their continuity. This is common in family businesses with management bodies made up of second and third generation partners: the family grows, and with it, the number of partners.

In order to avoid conflicts in decision-making, to reduce the tax cost of intercompany transactions and to give the group a solid and up-to-date image, the creation of a Holding Company is the most appropriate solution. In other words, the holding company is the umbrella that protects groups of companies from risks, disagreements and cost overruns.

When should a Holding Company be set up?

The approach to creating a Holding Company begins when a group of shareholders owns more than one company. This situation often leads to major problems, especially in the long run, which, if not addressed, can lead to the end of the business. In general, problems arise for the following reasons:

  • Confrontation between working and non-working shareholders: those who only want profits versus those who want to reinvest in the companies.
  • Decision-making blockage in the decision-making body: there may be certain partners with veto power who paralyse strategic decision-making processes for personal reasons or conflicts with other partners.
  • Reinvesting profits from one company in another has a high tax cost: it is very expensive.
  • Business risk: it is not possible to extract excess cash or assets (such as real estate) from companies without paying high taxes. If companies go into insolvency proceedings, such proceedings may result in assets and excess cash being awarded to creditors.
  • Moreover, if one company does badly and another does well, offsetting losses against profits is also very expensive.
  • High costs and taxes.
  • Limitations on eligibility for the benefits relating to loss offsetting between the different companies in the group.
  • Disadvantages in the deduction for reinvestment of extraordinary profits, when the reinvestment is made in another company of the same group.
  • Confusion between family assets and business assets.
  • Impossibility of benefiting from the tax consolidation regime for corporate tax purposes.

Every problem has its solution.

The added benefits of a Holding Company

In addition to the advantages detailed above, a Holding Company brings other benefits such as the following:

  • Decision-making is simplified. This is because decisions can be taken by simple majority instead of requiring qualified majorities. In a Holding Company, decisions are normally taken by simple majority (possible quorum 50.01%), reducing the veto power of minority shareholders, which undoubtedly guarantees the future survival of the family business.
  • Tax costs are lower. Money can circulate between the group companies tax-free and it is possible to reinvest the profits of one group company in another, and losses can also be offset against profits under the tax consolidation regime, which has an immediate impact on cash flow in favour of the business group.
  • The capital gain is exempt from taxation. If one of the group companies is to be sold in the future, the capital gain will be exempt from tax if a number of conditions set out in the law are met. In this respect, article 21 of the Corporate Income Tax Act establishes that dividends or shares in the profits of entities are exempt when a series of requirements are met, which are as follows:
    • The percentage of direct or indirect participation in the capital or own funds of the institution is at least 5 per cent. It is important to note that the wording of this section was modified and applies from 1 January 2021. A limitation to the exemption is established and set at 95 per cent. Therefore, dividends will be taxed at 5%, which means that a tax rate of 1.25% will have to be applied.
    • The corresponding shareholding must be held uninterruptedly during the year prior to the day on which the profit to be distributed becomes payable or, failing this, must be held thereafter for the time necessary to complete this period.
    • In addition, in the case of holdings in the capital or equity of entities not resident in Spanish territory, the investee must have been subject to and not exempt from a foreign tax of an identical or similar nature to this Tax at a nominal rate of at least 10 per cent in the year in which the profits distributed or in which the shareholding is held were obtained, regardless of the application of any type of exemption, rebate, reduction or deduction on those profits.
  • Improvement of the company’s image. A Holding Company provides a better image both with regard to banks and with regard to customers and suppliers. The Holding Company conveys solidity, professionalism and organisation.

If these advantages convince you, do not hesitate to look for a good business consultancy service to start planning your future. Leialta is a business consultancy with experts specialised in family businesses and in the creation of holding companies. We will provide you with all the information and accompany you at all times to create a solid, transparent and completely legal project.

Tax advantages of the holding company as a model for organising the net assets of a company

The existence of a holding company brings advantages of various kinds, although the tax advantages are particularly noteworthy, including the following:

  • Application of the exemption in the case of distribution of dividends between investee companies. In the event that a subsidiary distributes dividends to the parent or holding company, the exemption can be applied, i.e. no tax is payable. In order for this to be possible, several requirements must be met, such as the holding company having a shareholding in the subsidiaries of at least 5% or the acquisition value being more than 20 million euros. On the other hand, in these cases there is no obligation to withhold tax as in the case of a shareholder who is an individual and receives dividends.
  • Exemption on capital gains. In the event that the holding company transfers shares it holds in its subsidiaries, it will benefit from a full exemption on capital gains, thus avoiding double taxation in corporate income tax. In this case, the requirements for the exemption to apply are the same as in the previous case: the percentage of the holding must be 5% throughout the year prior to the transfer or the acquisition value must be more than 20 million euros.
  • Application of the tax consolidation regime. The tax consolidation regime is regulated in Article 55 of the Corporate Income Tax Act and means that the group of companies is taxed as a single taxpayer, with the holding company being responsible for the payment of taxes. The application of the tax consolidation regime brings advantages such as the following:
    • Intra-group profits do not exist.
    • It is possible to offset the losses of one group company against the profits of another company.
    • No withholding taxes are applied to interest payments, dividends and other income.
    • Ease of application of tax credits and other tax benefits, as the conditions of the group as a whole are considered, not those of individual companies.
    • Documentation of related-party transactions with group companies is not required.
  • Possibility of applying the special VAT regime for groups of entities. In order for the special VAT group of entities scheme to apply, the holding company must have effective control of more than 50% of the capital or rights of the subsidiary companies. In addition, the holding company must not itself be a subsidiary of any other company. There are two types of VAT regime, as follows:
    • Simplified. In this case, the companies in the group may offset the balances of the settlements to be paid, offset or refunded.
    • Advanced. In this case, the main benefit is received by companies that carry out exempt transactions without the right to deduct VAT.
  • Other benefits. The holding company structure also allows you to take advantage of other tax benefits such as exemption from wealth tax, the application of the 95% reduction in the taxable base for inheritance and gift tax and the application of the exemption in the case of lucrative transfers in personal income tax.

If you want to create a holding company or restructure your group of companies in order to transform it, it is important that you have the help of a specialized business consultancy to analyze your case and advise you on the best option to optimize taxation.

The power of organization in family businesses

There is no doubt that when a company is perfectly organized and its structure is transparent to its partners, everything flows smoothly and serious problems can be solved.

Holding companies are perfect for family (and non-family) businesses that are stifled by conflicts, disagreements between partners and high taxation.

The fact is that in the family business there are two very important elements that can give rise to problems and may even threaten the survival of the company: confusion between family and business aspects and succession. Several tools are available to avoid problems. The family holding company, the family council and the family office.


What is a family holding company?

In a family holding company, what is done is to create a structure in which one company (parent) holds shares in other companies (subsidiaries), thereby simplifying management, reducing the tax burden and separating responsibilities, so that if a branch of activity carried out by one company does not go well, it does not affect the rest of the companies.

What is the Family Council and what are its functions?

The Family Council is a body that exists in the family business and is made up of shareholders and potential family shareholders, whether they work in the company or not, and whether they belong to the Board of Directors or not. Basically, the Family Board is the link between the company and the family. Its most important functions are as follows:

  • Establish the values that will govern the family business.
  • Controlling that the Board of Directors respects these family values.
  • Maintaining family discipline.
  • Preparing for succession.
  • Communicating the family’s views to the Board of Directors.
  • Adopting measures and agreements regarding the distribution of shares among the next generations.
  • Discussing and signing agreements on share syndication agreements or golden parachutes.
  • Drawing up plans for the management of family assets, such as the creation or contracting of a Family Office. In the following section, we will see what this involves.
  • Manage the information that the family will receive from the company, especially in sensitive cases such as the dismissal of the Chairman, the company obtaining poor results, the closure of a shop, factory or office or a merger operation with another company.
  • Manage the drafting and updating of the Family Protocol, in coordination with the Board of Directors, the company management and the Family Assembly.
  • Promoting interest and training the next generations of the company.

What is a Family Office? 

When the wealth of a family business grows, the need may arise to create a Family Office. This is a company whose purpose is to manage the family’s wealth and invest in financial and non-financial assets. The functions performed by a Family Office may be the following:

  • Wealth management. This includes the following: financial asset management and property management (rental, sale, assignment, subletting, collection of receipts, claiming of rent due, etc.).
  • Wealth growth. This consists of the creation of an investment strategy through the study of the market and the various options that exist.
  • Legal and tax advice. The creation of the Family Office has the final objective of complying with the law and reducing the tax burden of the assets, studying the situation and applying the tax deductions and regulations that allow the amount of taxes to be paid to be reduced.

In the case of the Family Office, there are two options for wealth management:

  • Single Family Office (SFO). This is a company that provides services to a single family.
  • MultiFamily Office (MFO). If the family wealth is not very large, this is an advisory office for several families, i.e. it does not have exclusive dedication.

As you have seen, the structure of the family business can have options that facilitate its management and that may become necessary when the company grows and develops. However, it is always advisable to have the point of view and advice of an external consultant to analyze the situation and provide objectivity.

Do you think that a Holding Company can solve important problems in groups of companies? Ask for more information on how Leialta can help you with holding companies and tell us what you think are the disadvantages and advantages of a holding company. Leave your comment!


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