Have you ever thought about what is a holding company good for? Watch this video to find out why you might want to consider a holding company for your business.
If you prefer reading, check out the transcription below the video.
Good afternoon, everyone. It’s Irfanali Moledina with RMI Professional Corporation. I
hope everyone had a great week. I’m back again and today, I just wanted to touch
on the topics of holding companies.
Every so often we meet a new client and we discuss with them the purpose and the importance of having holding companies and why.
the purpose of a holding company
What I wanted to touch on today was why we typically set holding companies up and if you ever need one, you can always reach out and we can obviously dig deeper into this discussion to see if it actually makes sense for you.
The purpose of a holding company is to separate your investments from your actual operating business. We have a couple of different reasons why we do this.
liability in business
The first reason, of course, is a liability. Anytime you have an operating company, you’re creating liability for yourself.
When you have that liability, you don’t want to necessarily have all your investments and your assets that you’ve been able to build up over time in the same operating company.
When you do that, if you ever get sued, it’s putting your assets at risk.
tax savings with a holding company
The next big reason is tax savings. There are actually a few different tax reasons for setting up holding companies.
One of them is, in Canada, if your holding company actually owns more than 10% of your operating company, we can do a tax-free dividend. What that means is you can take money out of your operating company, move it to your holding company and your holding company doesn’t pay any extra tax on it.
It’s an easy way to actually move profits and assets out of your operating company into a separate entity.
One more thing we also have to consider is when you keep investments and cash inside of
an operating company when it comes to time to sell your business or do some restructuring, there could be some complications that might arise as well.
So, it’s really important to actually look at your business structure from the get-go when you’re starting with your business to see if you need a separate entity to act as a holding company or if having just one company is enough.
Talk to small business accountants in calgary
Once again, I hope you all have a great week, and thank you for tuning in.
As always, feel free to reach out. Our team of small business accountants at RMI Professional Corporation in Calgary is here to help.
If you have questions about the holding companies or any other topic, book your Free consultation today!