Advantages and disadvantages of a holding structure

Companies evolve, and a small company may come to a time when it needs another type of structure to grow and diversify. We tell what a holding company is and its advantages and disadvantages.

What is a business holding company?

A holding company is a corporate structure in which there is a group of companies, where one of the companies (the parent company) has control over the others, which are subordinate.

The legal regulation of the holding concept is carried out in the article 42 of the Commercial Code which establishes that A group of companies exists when one company has control of another or others. It is understood that this control exists when the dominant society:

• Owns the majority of voting rights.
• He has the power to appoint or dismiss the majority of the members of the administrative body.
• May have the majority of voting rights.
• He has appointed with his votes the majority of the members of the administrative body.

Advantages and disadvantages of a holding company

So that you can assess whether you are interested in establishing a business holding company, we detail below the advantages and disadvantages of this type of corporate structure:

Advantages of a holding company:

• Taxally, if one of the group companies registers losses, they can be offset with the profits of another.
• It is possible to save taxes with a holding company since the holding company is subject to the tax consolidation regime, which means that each company stops paying tax individually, and the group begins to pay tax jointly as a single taxable person.
• From a business point of view, the image that is transmitted to clients and suppliers is more solid and professional.
• With a holding structure, it is easier to see how the business evolves and what activities work best.
• Decision-making is easier because the parent company controls the rest.
• In the case of the transfer of shares or interests in a holding company, there may be tax deductions that will depend on each autonomous community.

Disadvantages of a holding company:

• From an organizational point of view, there may be a lack of information and communication between the companies of the group, which can produce duplication of tasks, friction, and lack of agreement.
• Corporate identity can be diluted as it is a complicated business structure.
• A monopoly may occur due to the predominant position of the parent company over the rest of the companies so the group could control a certain market.