Everything you need to know about a holding company

A holding company is a kind of business, which deals particularly with assets, investments and management, rather than just goods and services with a view of earning profit from the product sales. It will be limited by shares and the main activities of a holding company are owning assets in other companies. Assets can be in the form of intellectual property, real property, and shares.

Moreover, holding companies can also be responsible for managing and supervising other companies. Besides, they have other functions like holding a company, which will not conduct any other type of business activity.

The other companies in which the holding companies hold assets are referred to as 'subsidiaries'. Holding companies in the UK, which own more than 50% of another company are known as 'parent' companies of these subsidiaries.

The statutory requirements of a holding company

To meet the criteria of a holding company, the Companies Act 2006 (sec. 1159) stated that the holding company's subsidiary will be considered in the following circumstances:

• The parent company holds more than 50% of the voting or authoritative rights in the subsidiary.
• The parent company is a member of the subsidiary and has the authority to appoint or remove the majority of its board of directors
• The parent company is a member of the subsidiary and, under an agreement with other shareholders, it alone can control a majority of the voting rights in the subsidiary.

Tax liabilities of a holding company

One of the most important attractions of this kind of company is the company is best for saving tax. Majority of the shared disposal and dividend payments are exempt from tax. If a holding
company owns a 'substantial shareholding' of at least 10% of the ordinary shares in a subsidiary for a period of 12 months and if the shareholders dispose these shares during a period of two years, then it can be disposed without any tax liability, as long as the parent company and its subsidiary are active businesses for a period of 12 months prior and subsequent to the disposal.

A holding company will also be exempt from VAT taxable supplies if its main functions are:

• The acquisition of shares in subsidiaries
• Receiving dividend payments from these shareholdings
• Defending itself and its subsidiaries from takeovers
• Disposing of shareholdings in subsidiaries

HMRC does not view this kind of functions as 'taxable supplies'. Hence, any holding company that operates with these main functions alone will not be liable for VAT. It is not possible for this type of parent company to voluntarily register for VAT. However, if it provides taxable supplies to a subsidiary, then it will be permitted to voluntarily register for VAT. Compulsory VAT registration is applicable if the annual taxable of the parent company is more than £85,000 (2018-19).

Can the word 'holding' be used in the name of a firm?

The rules for company and business names were made on January 31st 2015. The use of the word 'holding' is not considered sensitive anymore. Therefore, there is no bard in including this word on your company name any longer.

How do I register a holding company?

A holding company can be formed correspondingly as any other private company limited by shares. It should be legally incorporated at the Companies House and remain to strict statutory filing requirements. The following information is required for the application form:

• Company name
• Registered office address
• Standard Industrial Classification (SIC) codes
• Details of the directors (at least one)
• Details of the shareholders (minimum one)
• Memorandum and articles of association
• Share capital - details of the shares
• Information about people with significant control
• Supporting documentation for the sensitive words in the name of the firm

The documents will be submitted electronically to the Companies House. If all the documents that are provided are in order, then your new company will be provided within 24-48 working hours. The hardcopy documents will also be posted to the registered office address within 24 hours of incorporation.

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