How to set up a Holding: Your guide to starting a holding structure in Germany

Contents:

• What is a Holding?
• Who can start a Holding?
• How to form a Holding
  • How to structure a Holding
  • The formation process
• Other things to think about 
• Want to know more about holdings? 

What is a Holding?

Despite being called a “holding company” in English, a Holding is not a type of company. Rather, it’s a corporate structure with at least two companies.

The classic holding structure has:

• a parent company (Mutterunternehmen), also called a Holding
• a subsidiary (Tochterunternehmen)

Usually founded by a natural person as a proxy, the parent company then acts as a shareholder of the subsidiary. It can hold 10% to 100% of the shares.

There is no limit to how many subsidiaries a business may have.

A holding structure can only exist when the parent company owns shares in all subsidiaries and a majority of voting rights.

Who can start a Holding?

Anyone that can do business in Germany can set up a holding structure. The only decisive factor is that both the parent company and the subsidiary or subsidiaries are corporations.

Traditionally, a Holding has been the hallmark of a large corporation. Today, however, more and more SMEs and startups are reaping the benefits of this structure for themselves.

How to form a Holding

To start a Holding, you need at least two companies. But how you structure your business will likewise shape the formation process.

How to structure a Holding

These three configurations are possible for a holding structure in Germany:

• You set it up from scratch with two or more brand new companies.
• You form one new company to link it to an existing company.
• You connect existing companies.

Corporations only

The parent company and all subsidiaries must all be corporations (i.e., incorporated companies).

The companies can have the same legal form or not. For example, you can use a GmbH as the parent company and a UG as the subsidiary or vice versa.

Startups are most likely to use two UGs as it requires the least amount of Stammkapital (share capital).

The Holding formation process

Step one: Structure

Decide on how to configure the holding structure.

The majority of founders in Germany build their holding structures with the GmbH or the UG legal forms.

Step two: Parent company

Form (incorporate) a new parent company.

OR

Select an already existing incorporated company as the parent company.

Step three: Subsidiary

Form (incorporate) the subsidiary company.

OR

Appoint the parent company as a shareholder in the subsidiary company by transferring at least 10% of its shareholding to it.

Both options involve modifications to the subsidiary’s Gesellschaftsvertrag (articles of association) and a notary appointment.

Other things to think about

Luckily, there’s no separate notary appointment to conjure up the Holding itself (it’s just a step in the company formation/incorporation for the individual companies).

But, don’t be fooled by this three-step process. Consult a tax adviser to thresh out the tax implications of different structures for your business. And get a lawyer to oversee the legalities of setting up your Holding, especially when drafting or updating the articles of association (Gesellschaftsvertrag) of the companies.

Getting the guidance of a professional helps you avoid costly pitfalls. For example, if you don’t implement a holding structure from the start, you can’t fully benefit from the tax advantages until seven years has passed.

Want to know more?

Our Holding essential reading:

1. What is a Holding?
2. The pros and cons of the Holding

The Master list of all Company Formation articles can be found here.