How to Form a Holding Company

Some companies own many other sub-companies and when they want to monitor all stocks and assets of all these sub-companies, they open another company to handle this.

Since the company cannot just manage every other company at once, it tends to form an organisation with the sole purpose of handling the stock assets and liabilities of other subsidiary companies.

Sometimes it might not be companies under the same mother company but different individual companies whose stocks are under the same company and this company manages every stock and asset of the other companies under its management.

A holding company is a type of company with no trading or business activities but is formed solely for the aim of controlling the stock of other companies. Holding companies do not sell products or services and they do not engage in any other activities apart from holding, controlling and managing stocks of other companies.

But what are the steps involved in incorporating a holding company?

In this blog post, we will see how to form a holding company.

What is a Holding Company?

Holding companies are financial institutions which hold and manage the assets and stocks of other companies.

They are sometimes referred to as an umbrella company or a parent company. The companies under the holding company are called subsidiaries. The subsidiaries have all their stocks managed by the holding company and also monitor the profits and losses in the company's stock market.

One important advantage of a holding company is that it is protected from the creditors of the company it holds its stock. In the case of a liquidation or the case of a serious company debt, the creditors cannot come after the holding company regarding the debts their subsidiary company owes.

The holding company can control the management of the company but cannot be involved with the running of the company business. That is left for the management to make decisions regarding the operation of the business.

A holding company can also select the directors of its subsidiary companies as well as remove directors and secretaries of the company.

According to the Companies Act 2006, section 1159, a holding company is only considered to be the parent company of a subsidiary company if

• The parent company holds more than 50% of the voting rights of the subsidiary company
• The parent company is a member of the subsidiary company and has the right to appoint or remove directors.
• The parent company is a member of the subsidiary and according to the agreement with other shareholders, the parent company will control a majority of the voting rights in the subsidiary company.

Requirements for Forming a Holding Company

The requirements for creating a holding company in the UK are if  more than 50% of the voting rights of the company are held by the parent company or if the parent company has the right to remove or appoint most of the directors as a members of the company and according to the agreement with other shareholders, the parent company is a member of the company and controls most of the voting rights of the subsidiary company

Forming a Holding Company

A holding company is formed the same way as every other private company limited by shares. The holding company is incorporated at Companies House and all the rules and regulations governing a holding company must be adhered to by your company.

Below is the information on the form used for registration of a holding company with Companies House.

1. Company Name

The company name must be unique and should not be the same as any other registered company. You can search online to check if your company name is being used by any other company. Once you find out another company is using the same name, you need to change your company name to another one or else your application will be rejected by Companies House.

2. Registered Office Address

The registered office address of the company must be included in the form. Since this is a holding company, the registered office address might be located in one of its subsidiary companies or have a different office address of its own. The office address is very important as this is where investors or authorities will come to during meetings or inspections with your company.

3. Standard Industrial Classification (SIC) Code

The standard industrial code is a number which signifies the industry your company is under.

4. Director's Details

The minimum number of directors needed is one and no maximum number of directors. All necessary information about the director should be included in the form. These information include

• Full name
• Residential address
• Service address
• Occupation
• Date of birth

And any other necessary information. All information should be correct and must be consented to by the director.

The directors are more of the representatives of the company and as long as you're 16 years and above, you can become the director of a company.

5. Shareholder's Details

Every detail necessary from shareholders should be included in the application. The form usually has a section for Shareholders' details. If a shareholder is also a director of the company, their name should appear both in the shareholders' section and the director's section of the form. The information required of shareholders include

• Name
• Residential address
• Date of birth
• Service address
• Amount of shares
• Persons with significant control status

6. Share Capital

Share capital is the details of every shareholder given to shareholders during the time of company incorporation. The price for a share and the amount of shares purchased by each shareholder should be included in this section.

The nominal value for shares is £1 but companies can decide to sell their shares at any amount. However, the price for the first shares is usually different from the price of shares after incorporation of the company.

Every shareholder's name should be listed alongside the amount of shares they purchased. In this case, since the company is a holding company, all companies will be listed as shareholders and the amount of stocks they own will be listed there. All shareholders of the subsidiary companies will also have their information noted for the holding company's records.

People with significant control of the holding company will also have their information listed. The people with significant control can be companies or other persons who want their stocks controlled by the holding company.

After completing all this information, you can then send your application to Companies House electronically or by post. If you register your company online, within three working hours, your application will be received by Companies House and your incorporation document will be sent to your office address.

Once your holding company has been successfully created, you can then begin controlling other companies' stocks.

You can monitor your application through your company manager on the Companies House platform. You can also change any information about your company online or update any information. You can also file and update your confirmation statement, annual returns, annual statement or report changes to Companies House.

In forming a holding company, you must have more than one subsidiary company and after incorporation, if the holding company does not perform the functions of controlling and managing stocks of their subsidiary companies, it can result in dissolution by Companies House.

After Registration

After successfully registering your holding company, you need to

• Make an entry notification before your company can go into full action
• Make an information return
• File annual tax returns
• You can also contact HMRC if there is any breach in the criteria for maintaining a holding company.

To make an entry notification to HMRC, you need the following

• The company name
• Unique Taxpayer Reference (UTR) number. If the company does not have one, you can create one on the HMRC online platform
• Date of entry this must be after the date you make the entry notification
• A statement that the company must meet all the requirements at the date of entry.

When making the entry notification, and your company is not a UK resident at the time of the entry, you'll include

• Territory of present residence
• Registration number of the company
• The date that you intend the company to become a UK resident, this date must be earlier than the date of entry
• If you do not meet the condition of ownership, you will need to create a different declaration and attach it to your entry information. In this declaration, you will declare that
• The company will meet all the criteria at the date of entry excluding the ownership condition
• Will meet the ownership condition within the first two years after the date of entry

To prepare the information return, at the end of every accounting period, you must make a notification with the following information

• Company name
• Unique Taxpayer Reference number of the company
• The name, address and UTR of the person who provided investment management services to the company through the accounting period. If a partnership is the one providing the services, you should state the information of the partnership and not a specific partner.
• A correct estimate of the market value of the assets managed by the business after the accounting year
• Total value gotten from the disposal of assets during that financial year
• Amount of payment the company made repayment and purchase of its shares

If the returns are not made on time, you will be charged a fixed penalty of £300. The due date of the information return is the same as the due date for the tax returns. It should be filed together and on time to avoid penalties.

The annual tax returns are also filed the same way as the information return and should be submitted together.

Form Your Company with Incorpuk Today

At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.

Conclusion

The method of incorporation of a holding company is the same as that of a private limited company. You must get your company's name and other necessary information about the company including the subsidiary companies and the amount of stock they own in the holding company.

The shareholder's and directors' information is also very important as well as the annual filing necessary for the holding at Companies House.