What are the benefits of a holding company structure?

As businesses grow, opportunities and risks increase. One way of planning to meet those changes is by looking at the structure of your business.

The best company structure for your business can mean looking at your organisation structure and risks, new classes of shares, structuring for tax but also separating out different parts of your business into a Group Company structure with a holding company.

We advise on all aspects of company structuring. Please do get in contact if you need advice and assistance.

Holding company overview

Given that many emerging companies are being built upon the licensing, commercialisation and exploitation of IP assets it makes sense to keep them safe in a separate company you own. There are other reasons for adopting holding company structures such as to generally reduce risk in a downturn or where you have a trading company but also assets such as valuable IP or real estate. We have helped numerous clients strategically protect their IP and separate these assets from the potential trading risks many businesses face.

Third parties cannot establish a legal claim against the holding company for liabilities incurred by the subsidiary unless the holding company has assumed liability under contractual arrangements, such as guarantees or indemnities, or if the subsidiary has merely acted as its holding company’s agent in dealing with the third party.

The benefits of a corporate holding company structure

There are many benefits which will depend upon the type of business we are looking at. As a guide the following points tend to be of general application :-

• Ringfencing your IP – keeping assets in a separate legal entity means that they can be ring-fenced from the business risks such as litigation, financial difficulties or insolvency of operating companies in the group.
• Reduce insolvency risk – If a subsidiary becomes insolvent, the insolvency practitioner cannot sell off the assets held in a different group company to maximize returns to creditors. With an IP holding company, any buyer of an insolvent subsidiary would still need to pay to the licence fee for the relevant assets to the holding company.
• Retain assets in the event of a sale – another advantage of using a group structure and with a holding company is that the owners of the parent business can retain the IP assets by keeping ownership on the sale of the rest of the business or other companies in the group structure. This can result in the ultimate owners of the IP maintaining a valuable asset at revenue stream if it is agreed that the recently acquired company will still enter a licence agreement for the use of the IP.
• Tax efficient corporate structures – relocating IP to tax advantageous jurisdictions.If the circumstances permit, an holding company could create a tax efficient structure. If the holding company was incorporated in another jurisdiction with tax advantages, any IP related profits accrued by the holding company would be taxed in its country of incorporation. We are seeing a trend to relocate holding companies operated in off share jurisdictions which are no longer seen as so appealing to banks and investors back to the UK which is now seen as more solid and reputable. It is possible to move both holding companies and subsidiaries back to the UK and we have worked with several companies over the past year undertaking this move.
• Consistency – keeping assets in one company alleviates the risks of different rights being held in different companies.
• Balance sheet – Assets can be recognised as separate assets on the holding company balance sheet.

For 20 years Gannons has been creating and delivering commercial solutions for our clients. If you need assistance navigating the complex issues surrounding company structures, holding company structures generally or the creation of an IP holding company, please get in touch.