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A company is one of the most commonly registered business structures in Australia. However, companies don’t follow a singular, one-size-fits-all model. In fact, there are several types of companies, each structured differently to suit specific needs.
A holding company is one such type. If you’re considering starting a company or restructuring your existing one, a holding company offers many benefits. It provides additional legal protection and can help manage and organise your operations more effectively. Let’s take a closer look at what it means to set up a holding company.
What Is A Holding Company?
A holding company is a company established for the primary purpose of holding assets and shares in other companies. In many business structures, a holding company is paired with an operating company. These two entities work in tandem: the holding company owns the shares and assets, while the operating company handles the day-to-day operations, streamlines management, and manages all other business-related matters.
But doesn’t this complicate things? Why not consolidate everything into one company?
While having two separate companies might seem complex, when set up correctly, this structure can actually simplify business operations and provide stronger legal protection. By separating ownership from operations, you reduce risk exposure.
So, if something goes wrong—for example, if the operating company faces legal claims or financial difficulties—the assets held in the holding company remain protected. This separation ensures that even if the operating company incurs liabilities or is sued, the valuable assets are shielded and not at risk.
Why Should I Set Up A Holding Company?
Setting up a holding company doesn’t just have the benefits of asset protection. There’s multiple reasons why you may want to set up a holding company for your business. A few of these include:
- Simplified Business Expansion: Holding companies can help growth by allowing easy acquisition and management of multiple businesses under one structure.
- Tax Efficiency: Offers tax advantages such as reduced tax on dividends and the ability to offset losses between subsidiaries.
- Centralised Management and Control: Streamlines decision-making and resource allocation across multiple subsidiaries.
- Succession Planning and Ownership Flexibility: Simplifies ownership transfers and succession planning while maintaining operational stability.
- Enhanced Credibility and Investment Opportunities: Improves financial transparency and makes the business group more attractive to investors and lenders.
Determining whether or not to set your company up as a holding company is a big decision. Getting advice that’s tailored specifically to your business is the best way to go — a legal expert can take the time to understand your goals and concerns. Professional guidance can help put you in a better position to make the right choice.
How To Set Up A Holding Company: Key Legal Steps
Setting up a holding company requires multiple steps and planning. Here’s a quick rundown of what’s required to set up a holding company:
- Choose a Company Structure: There’s multiple different ways to structure your holding company, you’ll need to determine what’s best for your business.
- Reserve a Company Name: Select a unique name and check its availability on the ASIC database. You can reserve it through ASIC to secure it for registration.
- Workout Company Administrative Matters: You’ll need to know which state or territory you’re registering your holding company in, what the official address for the company will be as well as its communication details, such as email and phone number.
- Appoint Directors and Shareholders Your holding company will require at least one director who resides in Australia. It’s important to attain written consent from all directors, shareholders and company secretaries as well.
- Register the Company with ASIC: Submit your application online via ASIC or a private service provider, providing details about the company, its directors, and share structure.
- Apply for an ABN and Tax Registrations: Register for an Australian Business Number (ABN) and, if applicable, GST and PAYG withholding, depending on your business activities.
- Open a Company Bank Account: Set up a bank account in the company’s name to handle financial transactions. You’ll need to provide your registration documents to do this.
- Maintain Compliance and Reporting Obligations: Ensure ongoing compliance by keeping financial records, filing annual returns, and notifying ASIC of any company changes.
It can be a bit tricky to set up a holding company if you’re unsure how to navigate the business legal landscape, so it’s always a good idea to get in touch with a legal expert for help.
Is A Holding Company The Same As A Trust?
No, a holding company is not the same as a trust. While both structures are commonly used to manage assets, they serve different purposes and operate in distinct ways.
A trust is a legal relationship where a trustee manages assets on behalf of beneficiaries. The trustee holds and oversees the assets within the trust, ensuring they are protected and used for the benefit of the beneficiaries. Trusts are often used for wealth management, estate planning, and asset protection.
A holding company, on the other hand, is a corporate entity that acts as a parent company. It owns and manages other companies (its subsidiaries) and holds their assets. Unlike a trust, a holding company’s primary function is to oversee and control its subsidiaries.
Can You Set Up A Holding Company As A Trust?
Yes, a holding company can be set up as a trust. Business owners often choose this structure to take advantage of several key benefits, including:
- Asset Protection: Safeguarding valuable assets from potential risks or claims.
- Tax Efficiency: Allowing flexible distribution of income to minimise tax liabilities.
- Centralised Ownership: Enabling multiple individuals to share ownership of the trust while centralising control.
Setting up a holding company as a trust involves a complex legal process. To ensure everything is structured correctly and in line with your specific goals, it’s best to seek expert legal advice.
Key Takeaways
A holding company can be extremely beneficial for your business, however it’s important to make sure it’s set up the right way. To summarise what we’ve discussed:
- A holding company is a corporate entity designed to hold assets and shares in other companies, typically paired with an operating company to separate ownership from operations.
- This structure offers significant benefits, including asset protection, tax efficiency, simplified business expansion, and streamlined management across multiple subsidiaries.
- Setting up a holding company involves several legal steps, such as choosing a company structure, reserving a company name, appointing directors, registering with ASIC, and maintaining compliance.
- Unlike a trust, which manages assets for beneficiaries, a holding company owns and controls subsidiaries.
- A holding company can also be structured as a trust, offering combined benefits like asset protection, flexible income distribution, and centralised ownership.
- Setting up a holding company requires careful planning and professional legal advice to ensure compliance and optimal structuring.
- Whether to use a holding company depends on your business goals; consulting a legal expert helps tailor the best solution for your needs.
If you would like a consultation on setting up a holding company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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