A holding company generally does not produce goods or services itself. Its sole purpose is usually to own shares. 홀덤
The reasons for establishing them are diverse. They may be created to operate for a short period of time or as part of a long-term plan. Whether it is better to form a Hold Co to hold your shares rather than you holding them personally requires significant consideration of your unique circumstances and advice from qualified professionals. Factors to consider include the nature of the business, other participants in the company and your long term goals.
Minimise Exposure to Risk
As a business owner, creditor protection is an important consideration. Even in the best-planned businesses, unforeseen circumstances can arise. They may protect a business owner’s interests by minimising exposure to the risks of trading.
Where a dividend is received by an Irish resident company from another Irish resident company it is exempt from corporation tax. By creating a Hold Co, retained earnings can be transferred from the trading company by paying tax-free dividends to the Hold Co. Business owners can thereby confine risk to the trading company without exposing the cash reserves held in the holding company. The Hold Co should be exposed to risk only to the extent of its investment in the trading company. If a Hold Co later decides to lend money to the trading company, it can secure the debt and become a secured creditor of the holding company. This gives the holding company priority when it is time for the debt to be repaid.
Tax Efficient Reinvestment
Another important advantage of a Hold Co is the ability to reinvest cash reserves on a tax efficient basis. To illustrate, profits from an active business earned inside a trading company are subject to a corporate tax rate of 12.5%. These after corporate tax earnings can then be distributed to the shareholders in the form of dividends. If the dividends are received by an individual shareholder they are subject to personal income taxes. Instead, the payment of tax free dividends to a holding company can allow the holding company to reinvest the funds it receives. By filtering out one layer of tax, the reinvestment of funds becomes tax efficient.