Holding formation: Kickstart your enterprise with firma.de

Operational Holding

Large-scale businesses typically use this kind of Holding. The Holding company itself is also an operating company, while the subsidiaries are branches. Within this structure, the parent company’s maintains tight control over its subsidiaries.

Management Holding

Within a Management Holding, the parent company issues directives to its subsidiaries about business strategy, capital flow management, and recruitment for management positions. Management Holdings often choose countries with attractive tax regulations to base their operations.

Finance Holding

Finance Holdings focus only on investment management rather than business oversight. In some cases, the parent company sets financial targets for its subsidiaries and functions as a corporate bank by providing capital.

Organisational or Structural Holding

This kind of corporation uses the Holding legal form as an organisational structure. Each subsidiary is a different department of the parent company.

Holding as a shareholder

Within this structure, the Holding acts as a regular shareholder, leaving the subsidiaries to manage their respective business operations autonomously.

This structure gives shareholders the tax benefits of a Holding without creating additional costs or increasing administrative burden.

A holding strucutre (known simply as Holding in Germany) in Germany offers many tax benefits. For instance, if you transfer a subsidiary's profits to the holding company , 95% are tax-exempt — provided that the Holding holds a high enough share of the subsidiary (§ 9 Abs. 2a GewStG). The tax savings can then either be reinvested or paid out.

Tax benefits of the Holding also apply in the sale of subsidiaries. Such transactions only attract a 1.5% sales tax.

Liability of a Holding structure's subsidiaries does not extend to the parent company. Thus, transferring profits from the subsidiaries to the parent company protects them from liability claims.

For non-Holding companies, the profits remain as company assets. In the case a liability claim, assets have no protection.

A Holding gives you greater control over your corporation's public image by allowing you to pursue different strategies through its subsidiaries.

For example, if you sell different products via different subsidiaries, customers are unaware of the underlying company structure. You can achieve this effect easily by using trusteeships.

While one company is selling medium-quality products at a low price, another subsidiary can sell premium products at a high price without creating PR issues. This way you can avoid confusing consumers with regards to quality, pricing and brand image of your different product ranges.

Yes, it is possible to convert an existing company into a subsidiary of a Holding. However, if you want to sell the company and benefit from the tax advantage that Holding structures afford, you are going to have to wait seven years to do so.

If you sell the subsidiary before seven years have passed, the tax advantage is prorated. For example, if you sell a subsidiary after four years, the tax advantage applies to four-sevenths (57 %) of the selling price.

For total tax savings, the existing company must be integrated as a subsidiary in the Holding formation process.

Unlike other corporate forms, which are liable for damages with all company assets, a holding structure's liability extends only to its subsidiaries - significantly reducing risk.

Shareholders enjoy further protection if the subsidiaries are limited liability companies (ie GmbH or UG).

Further analysis of split operations is below:

Pros

• Distribution of operational risks among business units
• Asset protection
• Market entry with many companies and brands possible

Cons

• Increased administrative costs from setting up multiple companies
• Greater operational complexity and thus costs
• Increased tax consultancy fees