A “holding company” can sound like something reserved for large corporates. In practice, we increasingly see small businesses adopting group structures for one main reason: options.
A well-designed holding company can help you separate risk, protect value you’ve built, and make future moves: new ventures, diverse investment, or exit planning, easier to execute.
The decision about whether or not to introduce a holding company should be driven by factors and triggers specific to your business.
In the article below we will refer to holding companies as ‘HoldCo’ and the main trading company as ‘OpCo’.
The 60-second overview (TL:DR)
A typical group looks like this:
HoldCo: owns shares in one or more subsidiaries; often holds cash, investments, IP, or property.
OpCo: employs staff, contracts with customers/suppliers, and carries day-to-day trading risk.
The trading business stays in the OpCo. The HoldCo gives you a separate “container” for ownership and strategic assets.
If you would rather watch Nick explaining these concepts, here is a link to our Youtube video.
Why business owners introduce a holding company
Below are common reasons from our experience working with business owners and supporting them with introducing a group structure:
1) Reducing exposure of retained profits and key assets
If your trading company faces a serious claim (commercial dispute, employment issue, contract failure), retained profits and assets sitting inside that same company can be exposed.
A group structure can allow value to be held away from day-to-day trading risk, provided it’s implemented properly and supported by good legal and commercial hygiene (contracts, insurance, governance).
2) Creating a clean platform for a second venture (or multiple brands)
If you’re launching a second product line, opening a new location, or starting a new business model, separate subsidiaries can ringfence operational and financial risk.
This is particularly useful when:
- the new venture has a different risk profile,
- you may bring in different shareholders, or
- you want clean reporting by business unit.
3) Centralising cash management and reinvestment
In many group scenarios, profits can be moved up from an OpCo to a HoldCo via dividends without creating an additional corporation tax charge on the receiving company in the same way trading income would (the exact position depends on facts, but intra-group dividends are commonly exempt).
This can support:
- building reserves at HoldCo,
- investing into another subsidiary,
- acquiring a business via the HoldCo, or
- funding property/IP ownership outside the trading entity.
4) Making future exit options simpler
A holding company can make it easier to:
- sell one subsidiary and keep the rest of the group,
- separate a business line for disposal,
- retain ownership of IP/property while selling trading operations (where commercially sensible).
Exit planning is never a quick exercise for “selling tomorrow”. It requires significant planning to ensure a smoother sale when the time comes.
5) Improving shareholder and succession flexibility
Group structures can support:
- different share classes and shareholder arrangements,
- future management buy-in / buy-out planning,
- separating voting control from economic rights (where appropriate),
- clearer family/business succession pathways.
This is often the real “why”: control and flexibility as the business matures.
When it usually makes sense: common triggers
A holding company tends to be worth exploring when one or more apply:
- Meaningful retained profits (and therefore cash) are building up and you want them less exposed to trading risk.
- You’re starting a second venture, brand, or location and want separation.
- You’re buying/owning property, IP, or other long-term assets and want to isolate them from trading operations.
- You’re thinking about investment, partial sale, or a future exit (even if not imminent).
- You want more sophisticated shareholder planning (growth shares, EMI context, family planning, etc.).
If you’re asking “Should we restructure?” you’re usually already at the point where a structured review is worthwhile.
What a holding company does not do
A holding company is not a magic shield or a tax hack.
- It doesn’t remove personal exposure where you’ve giving personal guarantees, have an overdrawn a loan account, or breached directors duties.
- It doesn’t eliminate risk, it changes where risk sits. Contracts, insurance and governance still matter.
- It doesn’t automatically reduce tax. Any advantage comes from sensible planning and disciplined implementation, not from the existence of HoldCo alone.
- It does add admin: more entities, filings, accounts, bank accounts, intercompany documentation.
Practical considerations before you restructure
It’s easier to build than deconstruct
Restructures can be reversed, but it can be messy: share transfers, valuations, legal steps, and potential tax consequences. Treat the decision as long-term.
You need intercompany discipline
Group structures work best when you treat them like grown-up corporate plumbing:
- board minutes where needed,
- written dividend paperwork,
- intercompany agreements/loan documentation,
- clear management accounts by entity (at the point HoldCo has material transactions).
Banking and funding need thought
Some lenders prefer simple structures and may expect:
- guarantees from the trading company,
- group-wide security,
- restrictions on moving cash out of OpCo.
If funding is material (especially short-term), design the structure with your lender/investor expectations in mind.
Tax and legal input isn’t optional
A “simple” restructure can become expensive if you discover late that:
- assets need moving,
- property/leases/finance agreements are in the wrong entity,
- there are shareholder changes to document,
- you’ve created unintended tax friction.
The work is usually manageable, provided it’s planned in the right order. Done correctly, we can often implement with no tax consequences to OpCo and its existing shareholders.
A sensible way to approach it (without overcomplicating)
We generally recommend a short structured review:
- Clarify the objective: protection, growth, exit flexibility, shareholder planning (or a mix).
- Map the current risks and value: where cash, IP, contracts, leases, and liabilities sit today.
- Model the target structure: include cashflows, governance, and funding constraints.
- Plan the implementation steps: sequence matters (legal, tax, banking).
- Put operating discipline in place: management reporting and documentation standards.
Done properly, this becomes a foundation you can continue to scale your business.
Closing thought: it’s about optionality
A holding company may not change how you trade day to day. But it can materially change what you can do next, without having to “rebuild the plane mid-flight”.
If you recognise two or more triggers above, it’s usually time to explore the idea properly.
FAQ
Do I need a holding company to protect assets?
Not always. Sometimes the better fix is improving contracts, insurance, governance, and cash discipline. A holding company can help, but it’s one tool, not the only tool.
Can I just set up a holding company above my existing company?
Often yes, but the right method depends on share ownership, existing agreements, and tax/legal steps. The implementation route matters and this is where we support our clients in getting it right.
Does a holding company reduce my corporation tax?
Not automatically. There can be efficiencies in moving profits and funding across a group, but it depends on facts and how you use the structure.
Will this increase compliance work?
Yes, but usually modest if the holding company will not be trading itself. There will be additional statutory accounts/filings, bookkeeping, intercompany documentation, and group reporting discipline.
What’s the biggest mistake you see?
Creating a group “because it sounds grown up”, or “someone in the pub said…”, without a clear objective as part of wider strategic plans.
Considering a group structure?
If you’re weighing risk, retained profits, a new venture, or future exit options, a short structure review can clarify whether a holding company helps, or just adds complexity with minimal benefits.
This insight is for general information only; and does not constitute formal advice. Always take tailored advice before acting.
