Corporate structures: advantages and disadvantages of a holding company

We usually think that only large companies have complex corporate structures, but more and more SMEs are adopting the structure of a holding due to the advantages it entails. .

In family-type companies, the corporate structure is usually in the hands of individuals, so one or more family members own each company. For example, the wife, husband and children are equal owners of several companies.

However, to create a holding company and benefit from its advantages, the corporate structure would have to change. In the case we have cited before, for example, the family would own a holding or parent company, which is, in turn, the owner of several companies.

Based on what is regulated by the Corporate Tax Law, a holding company is understood to be one that meets the following conditions</b >:

1.- That it has its legal personality.

2.- It is subject to and not exempt from Corporate Tax.

3.- It has a participation of at least 75% of the share capital and the majority of the voting rights of another or other entities.

4.- Participation and voting rights are maintained during the tax period.

5.- That it does not depend on another who may be dominant.

Advantages of holding

corporate structures
A holding can be defined as a form of organization of a company by which a company owns all or the majority of the shares of another company to have it under control . For example, if you have a restaurant and want to diversify your activity, you may consider opening a delicatessen or a cocktail bar. In that case, you can create a company for each line of business that depends on a parent company of which you are the owner.

Next, we are going to analyze some advantages of holding type corporate structures:

Tax advantages. This is, without a doubt, one of the biggest attractions. It is most advisable that you consult with your tax advisor about the taxation of the various options in your case. In general, we can highlight the following tax advantages:

• The losses of a company can be offset against the profits of another of the companies that are part of the holding company during the same fiscal period.
• Holding-type corporate structures do not have an obligation to provide information and documentation since they are subject to the Tax Consolidation Regime.
• Reductions in Wealth Taxand Inheritance and Donation Tax. Taxation is reduced, according to each Autonomous Community, on possession and transmission “inter vivos” and “mortis causa”. Of the holding company’s shares to descendants.
• VAT. The usual thing is that the holding company invoices VAT for the general services it provides to the group companies, which may be deducted from said VAT depending on the cases. For these cases, you should consult with your trusted tax advisor.

Commercial advantages. In general, a holding type corporate structure will allow for a strategic vision of the group. It will also provide a solid corporate image, favouring customer relations and attracting business.

Disadvantages of holding-type corporate structures

As for the disadvantages, we can highlight the following:

• Danger of becoming a monopoly. The company grows and attracts business in various areas related to the activity of the parent company, but there is a danger of it becoming a monopoly and controlling the market.
• Need a detailed study of each case. A holding type structure may be appropriate for a specific case and may not have the same benefits for another case. For this reason, as we said before, a tax study by your personal tax advisor is important.