Thread by @SimonHoiberg

🔥 Benefits of a Holding Company 🔥

Are you in the process of setting up a Limited Liability Company?

You may want to consider setting up a Holding Company as well.

Here's why 🧵👇

First of all - what is a Holding Company?

Well, a Holding Company is not a specific form of company (like an LLC or an INC).

It's simply a company that owns shares in another company and doesn't produce or offer any services itself.

A Holding Company is typically positioned between the operating company and the individual shareholder.

Let's take an example.
@SimonGronborg, and I are Co-Founding FeedHive.

Below is an illustration of our company structure 👇

Both of us own a Holding Company, and they each own 50% of our operating company, Contefly - the company that's running FeedHive.

Why?

Well, it all boils down to two reasons:
👉 Protecting our assets
👉 Defer and save taxes

Let me explain.

Periodically (typically each year), Simon and I will pay out the profit of our operating company as dividends to our Holding Companies.
We do this to protect our assets.

Imagine that we run into a huge lawsuit which ends up costing us a lot of money 👇

If our operating company owns a lot of assets (a huge balance on our bank accounts, expensive equipment, cars, etc), then those assets would be at stake, if a lawsuit went down.

By moving the assets to our Holding Companies, we are "securing them".

When a company pays out dividends to its shareholders, the shareholders will need to pay taxes from that.

But if the shareholders are Holding Companies, the dividends can be distributed and held tax-free.

This offers great flexibility and opportunities.

Let's imagine that FeedHive grows really big, and someday, another company wants to acquire it for a large amount of money.

If personal owners of a company choose to sell the business, they will end up paying an enormous amount of taxes on the profit 👇

Instead, our Holding Companies are the legal owners of our business and will be paying taxes according to very different rules, and essentially pay way, way less in taxes from the profit.

🔸 It allows your shareholders to defer paying income tax until the earnings are withdrawn at a later date.

🔸 It allows the full amount of the dividends to be available to the holding company for reinvestment in other assets.

This can potentially save us a LOT of money!

If you are in the process of setting up a Limited Liability Company, it is definitely worth considering setting up a Holding Company as well.
It's worth noting, that it can be very expensive to do this at a later point.

If you own a Limited Liability Company personally and want to transfer that ownership to a Holding Company at a later point, you are principally selling your company to another legal entity, which you will need to pay taxes on.

So think about this, to begin with.

You may be thinking: If I set up two companies, will I have to invest the initial share capital twice?

The answer is no.
You can use the share capital invested in the Holding Company to "roll on" into the operating company.

These legal setups can be complicated to understand, and even more complicated to carry out - so make sure to reach out to legal professionals and accountants to help you get set up.

It can potentially end up saving you a LOT!

I hope you enjoyed reading.
Happy hustling 🚀