What are the benefits of a holding company structure?

As businesses grow, new opportunities and challenges can arise. Reviewing your business structure can help you plan for these changes and put the right arrangements in place for the future.

The best company structure for your business may involve considering your organisational structure and risks, introducing new share classes, structuring for tax purposes or separating different parts of your business through a group structure with a holding company.

We advise on all aspects of company structuring. Please contact us if you need advice or assistance.

Holding company overview

Given that many emerging companies are built around the licensing, commercialisation and exploitation of IP assets, it can make sense to hold those assets in a separate company. There are other reasons for adopting a holding company structure, including reducing risk during a downturn or separating valuable assets such as IP or real estate from the trading company. We have helped numerous clients strategically protect their IP and separate these assets from the potential trading risks many businesses face.

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

The benefits of a corporate holding company structure

There are many potential benefits, depending on the type of business and the structure being considered. As a guide, the following points tend to be of general application:

• Ringfencing your IP - keeping assets in a separate legal entity can help ring-fence them from the business risks such as litigation, financial difficulties or insolvency affecting operating companies within the group.
• Reduce insolvency risk - f a subsidiary becomes insolvent, an insolvency practitioner dealing with that subsidiary will generally not be able to sell assets owned by another group company simply to maximise returns to creditors. With an IP holding company, a buyer of an insolvent subsidiary would still need to maintain the relevant licence arrangements to use those IP assets.
• Retain assets in the event of a sale - another advantage of using a group structure with a holding company is that the owners of the parent business may be able to retain IP assets by keeping ownership of them when selling the trading business or other companies within the group. This can allow the ultimate owners of the IP to retain a valuable asset and an ongoing revenue stream where the buyer continues to use the IP under a licence agreement.
• Tax efficient corporate structures – where the relevant tax rules and commercial circumstances permit, a holding company structure may offer tax advantages. The tax treatment will depend on factors including where the companies are resident, where assets are held and the nature of the relevant income and gains. The use of an overseas holding company therefore needs to be considered carefully rather than assumed to provide a tax advantage. It is also possible to move holding companies and subsidiaries back to the UK, and we have worked with several companies undertaking this type of restructuring.
• Consistency - keeping assets within one company can simplify ownership and reduce the risk of different rights applying across multiple entities.
• Balance sheet - assets can be recognised separately on the holding company’s balance sheet, subject to the applicable accounting treatment.

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 or the creation of an IP holding company, please get in touch.