If you are a business owner seeking to grow and protect your assets in Canada, consider setting up a holding company. A holding company can separate your operating assets from your investment assets.
To determine whether a holding company is the right choice for your business, you must consider many factors, such as your business structure, tax planning, and future business objectives.
In this article, we will talk about holding company benefits, so you can make an informed decision.
Benefits of Holding Company
Business owners can benefit from holding companies in numerous ways, including tax benefits, risk management, and raising new capital. Here are the details of the benefits of having a holding company for your business;
1. Tax planning
Tax planning is a significant advantage of holding companies. Holding companies enable you to structure your income so that current taxes can be minimized and future taxes can be deferred.
Holding companies, for instance, can provide you with options to defer taxes by reinvesting income, splitting income with family, or utilizing tax strategies such as the Lifetime Capital Gains Exemption (LCGE).
2. Estate and Succession Planning
A holding company also offers the advantage of estate planning and succession planning. Business owners can structure their share ownership so that their investment value is frozen and their children can gain future growth from their investments. The estate planning strategies listed above can also be used to defer taxes to the future to optimize the tax situation of you and your family.
A holding company can also provide an opportunity to transfer assets to your next of kin. You can streamline business succession planning by selling shares of the holding company rather than the operating company. When done right, this can give you big tax breaks.
3. Planning for your business’s future
Throughout the lifecycle of your business, you may consider a variety of opportunities, including growth strategies like raising capital and exit strategies like selling your company.
A business’s value includes its assets (such as the building) and its operations without a holding company. A buyer or investor may want to know the actual value of only the business operations if you want to sell or raise capital.
The value of the operating business could be more easily determined if the two parts were separate. Holding companies often own buildings, and operating companies lease them for their active operations. By doing this, you can separate the value of your business’s operations from your passive real estate investments.
4. Risk management
There are also benefits to holding companies in terms of risk management. The operating company can benefit from this corporate structure by optimizing its cash and assets. The holding company will still protect your investment if the operating company falls into financial difficulties or other liabilities arise.
With a holding company, you can separate your assets from your business operations. You can protect your assets with strategic risk management planning if unexpected business downturns occur.
Holding companies can help protect the assets of your business and can offer businesses a wide range of benefits, from tax benefits to risk management and raising new capital. Before planning your business, speak with a qualified accounting firm with extensive Canadian tax knowledge.