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Creating a group structure with a holding company can be the solution. But what exactly are group structures and are there any downsides to setting one up? Keep reading to find out more.
- What Is A Group Structure?
- Types of Group Structures
- What Are The Benefits of A Group Structure?
- Shareholdings
- What Are The Disadvantages of A Group Structure?
- Holding Assets Outside The Group
- Conclusion
A group structure is created when a company (directly or indirectly) owns one or more other company. The company at the top of the structure is called a parent or holding company and can have several subsidiaries beneath it. All companies in the group are under the ultimate ownership and control of the parent company.
Group structure examples
Group structures can themselves take a variety of forms, from a horizontal structure, vertical structure to various forms of hybrid structures (examples of which are illustrated below).
Alternatives to group structures
An alternative is to form a separate standalone company or companies that are owned by the same (non-corporate) shareholder or group of (non-corporate) shareholders. In that case, the companies are associated (sometimes referred to as 'sister companies'), being under the common control of an individual or group of individuals, but they do not form a group. Another alternative is to organise the business into divisions within a single company.
So why form a group as opposed to simply creating a division or setting up a separate entity? There can be a range of potential commercial, regulatory, legal and tax benefits in forming a group but perhaps the most common rationale for doing so is the management or mitigation of risk.
Many of the tax reliefs and regulatory benefits require certain economic ownership conditions to be met i.e. the parent to own (directly or indirectly) a specified percentage of the ordinary share capital of the subsidiary.
Whilst we have looked at some of the advantages of a group structure there are some potential disadvantages that will need to be considered and weighed against the benefits. These range from increased complexity and compliance costs (from preparing accounts to tax returns for each group company) to some potential tax disadvantages (for example the ...
Another question that arises is whether to hold assets such as properties or intellectual property within or outside the group. Ultimately this depends upon a variety of commercial and tax considerations and the precise individual circumstances.
There are a number of reasons why a group may be formed many of which are concerned with the management of risk. For more insights into the practical issues faced by owner managed businesses, see our articles on shareholders' agreements, employee share ownership and family ownership.
- Haydn Rogan
- Partner
- haydn.rogan@weightmans.com
Jul 25, 2023 · Tax advantages. Whilst each business within a group structure will be required to pay corporation tax, VAT and other relevant taxes, a group structure can offer attractive tax advantages. These include: The ability to transfer assets between companies in a group structure without triggering a disposal charged against Corporation Tax on any gains.
Aug 9, 2024 · The disposal of the shares is likely to trigger a capital gain on which corporation tax may be payable. The UK holding company may benefit from a relief called the substantial shareholding exemption (SSE), which would have the effect of making the entire gain exempt from capital gains tax.
Tax benefits; One of the main advantages of a group structure over separate companies with common ownership is that, subject to various conditions being met, group companies have the benefit of a number of tax exemptions and reliefs between them. These include applying certain tax losses and reliefs across the group, transferring of assets ...
A group of companies with total profits of less than the upper relevant amounts will pay less tax if the profits are evenly distributed around the group, than if one company retains the bulk of the profits.
People also ask
How can a group account for corporation tax?
Can group companies reduce corporation tax?
What are the main tax planning points and common stumbling blocks?
Who owns a company in a group?
Basically, where a holding company sells a trading subsidiary it pays no tax on the capital gain. By contrast, if a shareholder sells a standalone company there is no exemption from tax in their hands. So tax at 20% (or 10% if business asset disposal relief (BADR) is available) will fall due.
