The holding company structure is commonly used in the business environment, requiring verification of existing legal requirements, as well as other surrounding aspects, for the proper structuring of the holding company.
The holding company structure has been increasingly used and discussed in the business environment, being structured with a strategic focus, as a way to facilitate the planning, control, and management process of the companies involved. Furthermore, the interest in structuring a holding company is linked to the desire for greater asset protection, succession planning, and tax planning.
The holding company has practical and legal aspects that must be observed when structuring it. Therefore, in this article, we will address the types of holding companies, their characteristics, advantages, and disadvantages, and existing legal aspects.
Content:
- What is a holding company?
- What is the structure of a holding company?
- What are the types of holding companies?
- Advantages and disadvantages of a holding company
- How to establish a holding company?
- What are the main legal aspects that should be observed?
- Tax considerations for a holding company
What is a holding company?
A holding company is a company constituted with the objective of holding equity participation in other companies. The Brazilian Corporation Law (Law No. 6.404/1976) in art. 2 § 3 establishes on the subject, defining that a company may have as its purpose the participation in other companies, even if not provided for in the bylaws, with participation being optional as a means of carrying out the corporate purpose or to benefit from tax incentives.
What is the structure of a holding company?
The holding company structure is usually used with the aim of controlling other companies, being a company that holds a majority equity participation in the other companies involved. Thus, a holding company is attractive to entrepreneurs who own several companies with varied activity niches, in order to obtain greater business management. The holding company has the structure as shown below:
What are the types of holding companies?
Holding companies have various classifications, with the main classification being between pure and mixed. A pure holding company has as its exclusive objective the equity participation in other companies and generally the control of them, its only activity being the maintenance of equity participation. A pure holding company does not exercise any business activity, having as its central objective equity participation and the centralization of administration.
A mixed holding company, in addition to equity participation in another company, also has a corporate purpose for the exploitation of a business activity. They can also be classified as follows, not being an exhaustive list, since there are also other classifications:
Asset Holding: It is a company constituted with the objective of holding and centralizing the assets of one or more companies, aiming at asset protection. The asset holding company is usually used for corporate reorganization, succession planning, reduction of the tax burden, and asset shielding;
Participation Holding: It aims to hold equity participations;
Real Estate Holding: It aims to be the owner of real estate, for the proper management and administration of the same;
Operational Holding: Used with the objective of exercising business activity, operation, and the provision of services;
Family Holding: Commonly used for the organization of assets and proper succession planning by companies, in order to provide concentration, organization of administration, and simplification of the succession process.
Thus, as observed, there are various classifications related to the holding company and linked to its function exercised, and the company must be constituted and chosen according to its purpose. Among the classifications, asset holding, participation holding, and real estate holding are frequently used in the business environment.
Advantages and disadvantages of a holding company structure
When structuring a holding company, it is important to clarify the existing advantages and disadvantages, for the proper verification of the implementation or non-implementation of the same. Among the advantages present in the structure of a holding company, we can mention: (i) centralization of decisions; (ii) greater agility in transfers and allocations of resources between the companies of the group; (iii) greater asset control; (iv) centralization of assets; (v) administrative and procedural uniformity; (vi) ease in the transmission of inheritance and greater administration of assets; (vii) asset protection; (viii) business expansion and scalability.
It is also possible to mention the lawful reduction of the tax burden arising from tax planning, which will be better explained in this article below.
Among the disadvantages existing in a holding company structure, we can mention: (i) operating and maintenance costs; (ii) existence of various hierarchical levels; and (iii) higher tax burden if there is no adequate tax planning.
It is important to mention that the advantages and disadvantages must also be analyzed, verifying the specific case and the companies involved in the structuring.
We emphasize that the advantages are a great attraction for business groups, where the holding company enters as a possibility of corporate reorganization, for the proper asset and administrative management.
How to establish a holding company?
Holding companies are constituted like any other company, and the respective Articles of Incorporation or Bylaws must be drawn up, depending on the corporate type chosen for the company, whether Limited Liability Company or Corporation. When drawing up the company’s incorporation document, it is important to mention that the holding company must have a corporate purpose, a specific National Classification of Economic Activities (CNAE), and an incorporation act adapted for the case. After that, the act must be registered with the Commercial Registry.
We remind you that the corporate type chosen for the constitution of the holding company should take into account various conditions, such as the liability of the partners, tax and procedural issues involved according to the corporate type chosen.
It is important to note that the holding company is a company similar to the others, and therefore is subject to the same guidelines imposed on legal entities, differing by its specific corporate purpose and function.
What are the main legal aspects that should be observed?
We emphasize that a holding company will be defined and have its own characteristics according to its function and purpose. For example, a real estate holding company must have corporate purposes and CNAEs in accordance with the real estate management and administration it will carry out. A participation holding company, on the other hand, will have its corporate purpose and CNAEs in accordance with the management of equity participation in other companies. Thus, the importance of properly drafting the holding company’s incorporation act according to its characteristics is emphasized.
In addition, for the holding company structure, it is necessary to analyze in a complete way the companies, the assets involved, and the services provided for the analysis of corporate restructuring.
Thus, among the main legal aspects that should be observed, we emphasize the adequacy of the legal instruments according to the function it will perform.
Tax considerations of a holding company
It is common for companies to seek alternatives to pay less taxes, aiming to reduce costs for greater profitability and competitiveness for their company. Thus, tax planning is used for the analysis of the business and verification of the possibilities of eventual reduction of tax charges in accordance with the law.
Regarding the tax regime, the choice for the holding company is the same as for companies in general, and the prohibitions of the Simples Nacional (Simplified National Tax Regime) must be observed. We highlight in relation to the Simples Nacional the limits of annual gross revenue and the prohibition that a legal entity whose capital is participated by another legal entity, or also, participates in the capital of another legal entity, cannot benefit from differentiated legal treatment. Thus, given the prohibitions, the company can opt for the Actual Profit (Lucro Real) or Presumed Profit (Lucro Presumido) regime.
Regarding the taxes levied, the succession planning of the holding company may bring tax savings, with the aim of avoiding the probate and inheritance process, given that the assets will be in its name. Furthermore, the distribution of profits and dividends from the company is currently exempt from taxation.
We emphasize that the holding company is a business company with the difference of having a specific objective/function, such as equity participation and asset management, and may have different specificities according to its purpose.
Thus, as it was possible to observe throughout the text, the holding company has several classifications, with the main classification between pure and mixed, and also has advantages and disadvantages in its structuring, as well as legal and tax aspects that should be observed.
This structure is commonly used in the business environment, and it is necessary that the existing legal requirements and other surrounding aspects be verified for its proper structuring.
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