The holding company is not a separate legal entity: We show you why
The holding company structure is often mistaken for a separate legal form. It is simply an organisational structure that can strategically combine two or more companies. In this article, we will show you how this works and which legal forms are suitable for the holding company.
What is a holding structure?
The holding structure is often misunderstood and wrongly regarded as a separate legal form. In fact, it is a clever organisational concept that typically consists of a parent company and one or more subsidiaries. Below we explain the specific functions and advantages of this structure.
The holding company can take various legal forms, including GmbHs, UG (haftungsbeschränkt) or stock corporations. The parent company, often referred to as the holding company, is responsible for the shares in the subsidiaries. Although it is common for both company levels to have the same legal form, this is not mandatory.
If you want to set up a holding company, you must ensure that the parent company holds at least 10 per cent of the shares in the subsidiary. It is also crucial that the parent company holds the majority of voting rights. This guarantees that the parent company has a significant influence on the important business decisions of the subsidiary.
Key information at a glance:
- The holding company is not a legal entity in its own right.
- To set up a holding company, you need a company such as a GmbH, UG (haftungsbeschränkt) or Aktiengesellschaft.
- The holding company acts as a 'parent company' and holds shares in one or more subsidiaries.
- At least 10% of the shares in the subsidiary must be owned by the parent company.
- The parent company must hold the majority of voting rights in the subsidiary.
The holding structure: What legal forms can I choose?
To set up a holding company, you should transfer at least two existing or newly created companies into the holding structure. In the following points we will show you which legal forms you can choose and what the special features are:
- These are the legal forms suitable for a holding company
- What is a two-tier holding?
- What types of holding companies are there?
These are the legal forms that can be considered for a holding company
The holding company is the parent company that holds shares in the subsidiaries. There are a number of options as to which legal form you can choose for your holding company. The holding company is not bound by any particular legal form. However, the most popular are corporations, such as
- Limited liability company (GmbH)
- UG with limited liability
- Public limited company (AG)
What are the benefits of a holding structure?
When you choose a holding structure, you are combining two or more new or existing companies. This can involve considerable organisational effort. The advantages of a holding structure show why it can still make sense:
- You can save taxes: 95% of the subsidiary's profits can be sold to the parent company tax-free. The remaining 5% is taxed at a rate of around 30%. The bottom line is that you can save taxes and reinvest the money.
- No liability: The parent company is not liable for the subsidiary in the event of insolvency.
- Securing of property: The parent company can lend property (equipment, technology, etc.) to the subsidiary. In the event of the subsidiary's insolvency, the assets are secured by the parent company.
- Anonymity: Sometimes it can be strategically wise for the parent company and subsidiaries not to be associated with each other. This is possible with the holding structure, as the owner and the company name do not have to be the same.
Getting tax benefits with a holding company structure
You've probably heard that a holding company can help you save tax. But how can a holding company help you save tax? The classic holding company consists of a parent company (usually a corporation) that owns shares in the subsidiary (minimum 10% and maximum 100%). If you want to sell profits from the subsidiary to the parent company, 95% of the profits are not taxed. The remaining 5% is taxed at a rate of around 30%. On average, this saves you tax and allows you to reinvest the profits in the company structure.
What is a two-tier holding company?
The two-tier holding company is an organisational variant that combines several levels and layers of companies. Each organisational unit has a specific function in the two-tier holding company. A two-tier holding company typically consists of
- An operating company
- A holding company
- A holding company GmbH & Co. KG
- The shareholders of the holding company
Want to know more about the two-tier holding company? Find out now on our website!
What forms of holding are there?
Every holding company has a specific purpose. In principle, it can be said that the main purpose of any holding structure is to hold equity in the subsidiaries. However, the following forms can be distinguished:
- Financial holding company
- Management holding company
- Operational holding company
- Organisational holding company
Not sure which type of holding company is right for your company? Choose the right legal and tax package now and let our team advise you.
Conclusion
The holding company structure can have many facets and can be very complex to set up and implement. However, the advantages of a holding company are compelling: you can save taxes, distribute your responsibilities, limit your liability risks and secure your assets in the corporate structure!
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