Benefits of Setting up a Holdco
Is a Holding Company (Holdco) right for you?
Depending on your particular situation, a Holdco can provide significant benefits which I will outline below, but first a definition.
What is a Holdco?
A Holdco is a company you create in addition to the Company that carries on your business activities – often referred to as an Opco. The Holdco is used to accumulate and hold various investment assets and may also hold the shares of your Opco or shares of other businesses or partnership interests.
What are the benefits of setting up a Holdco(s)?
- A Holdco effectively separates investment assets from your Opco, so if your Opco runs into Creditor or liability issues, Holdco assets are generally not at risk
Facilitates Sale of Opco
- Potential purchasers usually only want to pay for your business, not assets it has accumulated. A Holdco will allow the sale of the Opco to reflect the value of the business interests and the Holdco assets will remain with you.
Optimizes access to your Lifetime Capital Gains Exemption
- Your ability to claim the lifetime capital gains exemption (LCGE) can be negatively impacted by investments and other assets not related to your Opco business. Assets held in a properly structured Holdco will not impact the LCGE on the sale of Opco shares.
- Minimizing taxes through Income splitting and Income Deferral
- Facilitating Succession and Estate Tax Savings
- Tax preferred Acquisition of other Companies
While there are many instances where a Holdco may be beneficial, you should first consult with both tax and legal professionals.
Feel free to contact us to discuss more about Holding Companies and if they will work for you.