Why create a holding company?

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1. What is a holding company?

A holding company, also referred to as”parent company”, is a legal person who holds participations (shares or shares) in the capital stock of several national or international companies, known as the”subsidiaries”, with the aim of forming a group for which it will hold the management unit.

In other words, the holding company will bring together several partners who have the common objective of acquiring significant influence within the companies owned.

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2. The different types of holding companies

Two categories of holding companies should be identified:

• The passive holding company (pure holding) whose sole purpose is to hold social rights in other companies. It is limited to the management of movable assets as a simple partner of its subsidiaries and does not interfere in the operation of these subsidiaries. It is therefore a civil activity.

• The active holding company (animator) which, in addition to this detention, provides services to its subsidiaries (Cass.com, June 19, 2019, No. 17-20.557.)

The Council of State came to define the holding company”animator” like the one with”for main activity, in addition to managing a portfolio, active participation in the conduct of group policy and in the control of its subsidiaries and, where appropriate and on a purely internal basis, the provision of specific administrative, legal, legal, accounting, accounting, financial and real estate services.” (CE, June 13, 2018, no. 395495, 399121, 399121, 399122, and 399124.)

More specifically, the existence of services provided by the holding company to its subsidiaries must be proved in order to qualify as an operating holding company, in particular by means of an administrative assistance agreement.

Therefore, the managing holding company carries out a genuine commercial activity for the benefit of its subsidiaries.

There is a last particular case which is that of The family holding (generally passive) where the holders of the shares come from the same family. The objective is to legally organize the distribution of shares.

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3. The creation of a holding

The classic formalities for setting up a business apply to holding companies. In this regard, it is necessary to choose The legal form adapted to the holding company (Civil society, SAS, SARL etc.) Most often, SAS is the legal form recommended when setting up a holding company because of the flexibility of the statutory rules according to the needs of shareholders. On the other hand, the status of civil society implies that the corporate purpose is strictly limited to civil acts, namely the management of real estate assets.

In addition, The social purpose should expressly consider the holding of shares in the group's subsidiaries and possibly the provision of certain services in the case of a leading holding company.

There are several methods for setting up a holding company.

• Mounting from the top which involves the combining of the shares of one or more companies already operating on the market for the benefit of the holding company. The parent company therefore becomes the majority shareholder of the group's subsidiaries.
• Mounting from the bottom when a company is created after the holding company and where the holding company will become a founding shareholder of this new company.
• The total or partial takeover (or takeover) of a business where the holding company is created in order to acquire the shares of one or more companies through the transfer of capital by the purchasers to the parent company. The creation of the holding company therefore makes it possible to finance the repurchase operation through the use of bank loans (most often for transactions of Leverage Buy Out - LBO -).

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4. The benefits obtained

Several reasons encourage the creation of a holding company considering pros Let it come out.

• Centralized management

The constitution of a holding company makes it possible to optimize the organization of the group by establishing of a common policy. Control is exercised by several partners of the holding company, without the need for them to be managers of the subsidiaries.

In order to allow subsidiary companies to focus on their core business, certain missions are entrusted to the parent company.

Often, agreements for the provision of services are agreed within the group. The holding company provides and invoices the services provided to its subsidiaries, which are generally administrative, legal or financial in nature.

Add to that treasury agreements which aim to centralize the various financial flows within the holding company. This “hub” company receives cash advances from a company (lender) and redistributes them to another company in the group (borrower). The objective is to finance the investment of one of the group companies to avoid the latter having to resort to bank loans.

• Legal and financial advantages

Because of the importance of the shares held by the parent company, it is obvious that the parent company can borrow more easily and with more advantageous conditions than the group's subsidiaries. It can then repay the bank loan thanks to the dividends paid by its subsidiaries.

The other advantage lies in legal protection granted by the holding company to the personal assets of the group's shareholders in the event of bankruptcy.

• A leverage effect

Through a holding company, it is possible to hold the shares of subsidiaries in order to transfer control to the successors. This is the objective in particular of family companies to ensure the sustainability of the activity.

To do this, it is sufficient that the holding company owns the majority of the shares of its subsidiaries. Thus, the creation of the holding company will allow the heir to indirectly control the operating companies, even if he does not hold the majority of the capital in these. That's what we call “the leverage effect”, considered to be one of the great assets of holding companies.

• Tax benefits

First of all, transfers of securities give the right to an exemption from income tax on realized capital gains, except for the reinstatement of a share of costs and expenses up to 12%.

In the case of an active holding company, the services provided will represent a taxable income for the holding company and a deductible charge for its subsidiaries, thus allowing fiscal optimization.

In addition, leading holding companies can claim Exemption from the ISF and to income tax abatement on contributions to the share capital if they have owned at least one subsidiary for more than one year.

• The mother-daughter diet

Aimed at Article 145 and Article 216 of the General Tax Code, the mother-daughter regime allows the holding company, which has held at least 5% of the share capital and voting rights of its subsidiaries for at least two years, to benefit a tax exemption of up to 95% on the dividends paid by them. Only a 5% share of costs and expenses will be reintegrated into the parent company's earnings.

Thus, the group avoids double taxation of its result subject to corporate tax.

• The fiscal integration regime

Under the terms of the articles 223-A at 223-Q of the General Tax Code, the parent company has the option To be solely liable for corporate tax for the whole group.

Therefore, it is necessary to sum up the results achieved by all subsidiaries in order to constitute a single taxable result. In this case, when deficits are realized by certain subsidiaries, corporate tax will be reduced.

In addition, when fiscal integration is implemented, the portion to be reintegrated into the taxable result increases from 5% to 1% only.

In order to opt for this regime, companies must necessarily be subject to corporate tax, be owned directly or indirectly at least 95% by the mother, who must not herself be more than 95% owned by another company.

• The transmission of assets facilitated

By creating a holding company, The manager can Easily designate his successor, without the need to transfer the majority of shares to him.

In addition, transmission by donation or inheritance allows the transferee to benefit from advantageous conditions in terms of registration fees, namely a 75% tax reduction implemented by the “Dutreil” pact and adopted by the statute of finances for 2019. Inheritance taxes will therefore only cover 25% of the value of the shares transferred.

Consequently, the creation of a group managed by a holding company allows to ensure the continuity of all companies and simplify the coherence of the group's guidelines through a common strategy.

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5. The easy management of your group of companies with Axiocap!

Are you shareholders of a group of companies and its management is slow and tedious? Axiocap accompanies you for optimal organization of the holding company and its subsidiaries thanks to digital technology!

In this regard, you can centralize all of your companies on a single secure platform. You will find all their information such as the holding percentage of the holding company within each of the subsidiaries in just a few clicks!

Shareholder management is done remotely, in record time! Through a blockchain (DEEP), All the Securities movements are recorded and listed in a dematerialized register. This has the same evidentiary value as a conventional paper register.

In addition, The general meeting can be held in all circumstances: sending the convocation in LRE, online voting, automatic generation of the PV with electronic signature and recording it within the dematerialized GA register by means of a timestamp!

Don't wait any longer to manage your group on Axiocap! Open an account here.