Found holding

Within a holding structure, there are several companies which are connected with each other. For example, you as a private person found an UG (haftungsbeschränkt) (small limited liability company). Afterwards, your UG (haftungsbeschränkt) founds a GmbH (limited liability company). In that case, the UG (haftungsbeschränkt) is shareholder of the GmbH and you are shareholder of the UG (haftungsbeschränkt). The operational business is run on the level of the GmbH only. In consequence, the UG (haftungsbeschränkt) is a holding company, because it’s purpose is to hold the participation in the GmbH. The holding company does not run it‘s own operational business.

There are many reasons for founding a holding company. The tax reinvestment effect may be one of these reasons. The tax burden imposed on benefits resulting from a participation of a corporation (e.g. an UG (haftungsbeschränkt)) in another corporation is significantly lower than the tax burden imposed on benefits resulting from a participation of a private person in a corporation (e.g. a GmbH). Another reason might be that voting rights shall be pooled on the level of the holding company. Thanks to such an effective pooling of voting rights, the processes on the level of the operational company can become much more efficient. Before you decide on whether to found a holding company or not, you should collect all the relevant information in order to be aware of all the consequences, e.g. through a consultation session.

The foundation of a holding company triggers several costs. In order to establish an UG (haftungsbeschränkt) or a GmbH, you must make a notary‘s appointment. Further, the holding company must be filed with the commercial register. In consequence, there are notary and register fees. A bank account must be opened for the holding company. And moreover, the holding must pay fees for the chamber of commerce and industry (IHK). With respect to the transparency register a small yearly fee becomes due. As a result, the foundation of a holding company is only worth it if you have good reasons to do so. Such a reason might be that you want to benefit from the tax bonus for holding companies, which results from the reinvestment effect. If such good reasons exist in your case, you should calculate more time for the foundation of your holding company. As the opening of a bank account for your holding company is only possible once you had your notary’s appointment, the foundation of your operational company is delayed accordingly.