The Most Important Points in 30 Seconds
- A holding company is not a separate legal form. A holding company refers to a corporate structure in which a parent company holds shares in one or more subsidiaries. GmbHs or UGs are commonly used for this purpose.
- The formation process generally follows the rules of the chosen legal form. For a GmbH holding company, this includes, in particular, the articles of association, notarization, share capital, a business bank account, and registration in the Commercial Register. In addition, the ownership structure between the parent company and its subsidiaries must be planned.
- The biggest advantage may lie in the taxation of income from shareholdings. Subject to the statutory requirements, dividends and gains from the sale of shareholdings may, in particular, receive significant tax benefits at the corporate level. The actual tax burden, however, depends on the structure and the individual circumstances.
- A holding structure creates additional administrative work. The parent company and subsidiaries are legally independent companies and generally each require their own bookkeeping, annual financial statements, tax returns, and corporate administration.
- A holding structure can be particularly attractive for entrepreneurs with multiple companies, growth or exit plans, and plans to reinvest profits over the long term. For small businesses whose owners primarily intend to withdraw profits for personal use, the additional administrative burden may outweigh the benefits.
- Set up a holding company digitally: Once the legal form and ownership structure have been determined, you can set up your holding company digitally with beglaubigt.de and prepare the formation of the parent company and subsidiaries in a structured manner.
When Is It Worth Setting Up a Holding Company?
A holding structure can make sense if you want to build several companies under a common structure, reinvest profits within a corporate group, or hold investments over the long term and sell them later. For entrepreneurs with growth or exit plans in particular, a holding company can therefore offer considerable strategic and tax advantages.
However, a holding company is not a separate legal form. Rather, the term describes an ownership structure: a parent company holds shares in one or more operating subsidiaries. Both the holding company and its subsidiaries can, for example, be organized as a GmbH or UG.
Whether this additional corporate layer is actually worthwhile therefore depends not only on potential tax advantages. Formation costs, ongoing bookkeeping, annual financial statements, administrative expenses, and the intended use of profits must also be taken into account.
This article explains how to establish a holding company, what costs may arise, which tax considerations are important, and for whom the additional corporate structure may actually be worthwhile.
What Is a Holding Company?
A holding company is not an independent legal form but a corporate structure. Its defining feature is that a higher-level company—the holding or parent company—owns shares in one or more other companies.
A typical model consists of two corporations: for example, the holding GmbH owns 100 percent of the shares in an operating GmbH. The operating business involving customers, employees, and ongoing contracts takes place in the subsidiary, while the parent company primarily holds the investment and can manage assets and distributed profits.
Depending on the objective, several operating subsidiaries can also be managed under one holding company. This makes it possible to legally separate different business areas while connecting them through a common ownership structure.
A distinction can also be made between a pure holding company, which mainly manages investments, and a mixed holding company, which additionally provides its own operating services.
Advantages of a Holding Company
- Tax advantages
One of the main reasons for establishing a holding company is the potential tax advantages. Profits generated within the holding structure can often be transferred to the parent company tax-free or at a reduced tax rate. The holding-company tax privilege makes it possible to receive dividends from subsidiaries almost tax-free, which can be used for tax optimization, particularly in international structures. - Risk reduction
Establishing a holding structure can help distribute and limit risks. If one subsidiary encounters financial difficulties, the risk remains limited to that company and does not automatically affect the other companies within the holding group. - Strategic management
A holding company enables centralized and strategic management of investments. Decisions can be made centrally, and synergies can be used more effectively. This is particularly beneficial for large corporate groups. - Succession planning
A holding structure can also facilitate business succession. Centralized management of shareholdings can make it easier to transfer shares while retaining control over the business.
How Much Does It Cost to Set Up a Holding Company?
The cost of establishing a holding company depends primarily on how the structure is organized and which companies need to be newly incorporated. Unlike setting up a single GmbH, a holding structure may involve costs for several legally independent companies.
Typical costs include notarization of the articles of association, Commercial Register fees, and, where applicable, additional legal or tax advice. In addition, the required share capital for the selected legal forms must be provided. Share capital should not, however, be confused with the actual formation costs.
With a traditional structure consisting of a holding GmbH and an operating GmbH, it is therefore important to consider more than just the capital required for the parent company. What matters is the total financial expenditure required for the entire planned corporate structure.
Specific cost examples, individual fees, and a detailed calculation can be found in our guide “Setting Up a Holding Company: Overview of Costs”.
Who Can Benefit from a Holding Company?
A holding structure is not suitable for every business. It can be particularly worthwhile for:
- Corporate groups: If you own several companies or hold investments in different companies, a holding structure can offer significant advantages.
- Growth companies: Companies seeking strong growth and expansion can benefit from a holding structure because new subsidiaries can be integrated and managed more easily.
- Family businesses: For family businesses seeking long-term succession planning and asset protection, a holding structure can offer numerous advantages.
- Start-ups: A holding company can also make sense for start-ups seeking to attract investors, as it can provide a clear structure for shareholdings and offer tax advantages.
What Are the Disadvantages of a Holding Company?
In addition to the numerous advantages, there are also several disadvantages that should be considered when establishing a holding company:
- Complexity: Managing a holding structure is complex and requires extensive legal and tax expertise. It is therefore advisable to obtain professional advice.
- Costs: Establishing and managing a holding company involves additional costs that not every business can or wants to bear.
- Transparency requirements: A holding company must comply with extensive reporting obligations, creating additional administrative work. Further information can be found in our article “Shareholder List – Rights and Obligations.”
Who Is Allowed to Establish a Holding Company?
In principle, any natural person or legal entity can establish a holding company. However, certain requirements must be met:
- Legal form: The holding company must be established using an appropriate legal form, such as a GmbH or AG. Information on establishing a GmbH can be found in our blog post “Setting Up a GmbH – Explained Step by Step.”
- Capital: Establishing a holding company requires a certain amount of share capital, which varies depending on the chosen legal form.
- Notarization: The formation of a holding company must be notarized and registered in the Commercial Register. More information can be found in our article “Commercial Register Registration – What You Need to Know.”
How Do You Set Up a Holding Company? The Process in 6 Steps
Preparation of Formation Documents
The necessary documents, such as the articles of association and bylaws, must be prepared and notarized. Information about notarization can be found in our article “Online Notarization.”
Registration in the Commercial Register
Following notarization, the documents must be submitted to the Commercial Register. The registration is published, and the holding company receives a Commercial Register number. Further details can be found in our article “Commercial Register Registration.”
Tax Registration
The holding company must be registered with the tax office. Various tax forms must be completed and submitted for this purpose. Our article “Taxes and Fees When Setting Up a Company” provides an overview of the necessary steps.
Commencement of Business Activities
Once the company has been successfully established and registered in the Commercial Register, the holding company can begin its business activities. It is advisable to organize bookkeeping and administration professionally from the outset to avoid problems later. See our tips on successful business management.
Comparison: Holding Company vs. UG
A common comparison when setting up a business is between a holding structure and an Unternehmergesellschaft (UG). Both structures have their own advantages and disadvantages and are suitable for different purposes.
Advantages of a UG
- Low share capital: A UG can be established with share capital starting from just €1, making it particularly attractive to founders with limited initial capital.
- Limited liability: Like a GmbH, a UG offers limited liability, protecting the shareholders’ personal assets.
- Simple formation: Establishing a UG is comparatively simple and can be completed quickly. Further information can be found in our article “Setting Up a UG – Step by Step.”
Disadvantages of a UG
- Mandatory reserves: A UG is required to allocate 25% of its annual net profit to reserves until the share capital required for a GmbH has been reached. This can limit financial flexibility.
- Lower reputation: A UG often has a lower standing in the business community than a GmbH or holding company, which can make establishing business relationships more difficult.
Comparison with a Holding Company
While a UG is suitable for smaller businesses and start-ups beginning with limited capital, a holding structure offers significant advantages for larger corporate groups. A holding company enables centralized management and administration of subsidiaries, offers tax advantages, and facilitates succession planning.
While a UG is suitable for smaller businesses and start-ups beginning with limited capital, a holding structure offers significant advantages for larger corporate groups. A holding company enables centralized management and administration of subsidiaries, offers tax advantages, and facilitates succession planning.
Comparison: Holding Company vs. GmbH
The GmbH (Gesellschaft mit beschränkter Haftung, or limited liability company) is one of the most popular legal forms in Germany and is suitable for many business models. There are also several differences between a GmbH and a holding structure that should be considered.
Advantages of a GmbH
- Limited liability: A GmbH provides comprehensive limitation of liability, protecting shareholders’ personal assets.
- Flexibility: A GmbH can be used for many different business models and offers considerable flexibility in how the company is structured.
- Reputation: A GmbH enjoys a strong reputation in the business community and is perceived as a reputable corporate form.
Disadvantages of a GmbH
- Share capital: Establishing a GmbH requires minimum share capital of €25,000, which can be a significant hurdle for some founders.
- Complexity: Managing a GmbH is more complex than managing a UG and requires extensive knowledge of corporate law.
Comparison with a Holding Company
Compared with a GmbH, a holding structure offers additional advantages, particularly in strategic management and tax optimization. While a GmbH operates as an independent company, a holding company can centrally manage and administer multiple subsidiaries, potentially creating synergies and allowing resources to be used more efficiently.
We explain in detail how both variants can be structured and what differences need to be considered in the article “Setting Up a Holding Company: How the Corporate Structure Works with a UG or GmbH”.
Comparison: Holding Company vs. Sole Proprietorship
A sole proprietorship is the simplest and most common form of starting a business. Compared with a holding company, however, there are several fundamental differences:
Advantages of a Sole Proprietorship
- Simple formation: Establishing a sole proprietorship is simple and inexpensive. No extensive formation formalities are required.
- Flexibility: The owner has full control over the business and can make decisions quickly.
Disadvantages of a Sole Proprietorship
- Unlimited liability: The owner is personally liable with all of their private assets for the company's debts.
- Limited financing options: Sole proprietorships often have difficulty obtaining external financing because investors and banks may perceive them as carrying greater risk.
Comparison: Holding Company vs. GbR (Civil-Law Partnership)
A GbR is a simple and flexible form of partnership often used by small businesses and freelancers.
Advantages of a GbR
- Simple formation: Establishing a GbR does not require a notary or registration in the Commercial Register.
- Low costs: Formation costs are low compared with other legal forms.
Disadvantages of a GbR
- Unlimited liability: The partners are personally and unlimitedly liable for the obligations of the GbR.
- Limited financing options: Similar to a sole proprietorship, financing options are limited.
Comparison: Holding Company vs. AG (Stock Corporation)
An AG is a legal form particularly suited to large companies and provides access to capital markets.
Advantages of an AG
- Limited liability: Shareholders’ liability is limited to their investment.
- Raising capital: An AG can raise capital on stock exchanges by issuing shares.
Disadvantages of an AG
- Complexity: Establishing and managing an AG is complex and requires extensive legal and organizational measures.
- High costs: Formation and ongoing administrative costs are high compared with other legal forms.
Tax Aspects of a Holding Company
One of the main considerations when establishing a holding company is the potential tax advantages. However, these advantages depend on various factors, including the type of holding company, the corporate structure, and applicable tax legislation.
- Corporate income tax
The holding company is subject to corporate income tax, although certain income, such as dividends from subsidiaries, is often tax-exempt or only partially taxed. This can enable tax optimization at group level. - Trade tax
Trade tax may also be optimized through a holding structure. Careful structuring of business relationships between the parent company and its subsidiaries can reduce trade-tax burdens. - VAT
The holding company itself generally does not carry out activities subject to VAT. However, certain services provided between the companies may be subject to VAT. It is important to carefully examine the VAT implications and obtain tax advice where appropriate.
Conclusion: When Is It Worth Setting Up a Holding Company?
A holding structure can be particularly attractive if you want to establish several companies, hold investments over the long term, reinvest profits within a corporate group, or prepare for a future sale of a business. However, the potential tax advantages should never be considered in isolation.
Each additional company also increases formation, bookkeeping, and administrative costs. Before setting up the structure, you should therefore determine how the parent company and subsidiaries will be organized, which legal form is appropriate, and how future profits will be used.
If the structure is set up appropriately from the outset, a holding company can be used over the long term as a tool for growth, investment management, and wealth accumulation.
Holding structure finalized? Set up your holding company digitally with beglaubigt.de and prepare the next steps in the formation process easily and digitally!
FAQ on Setting Up a Holding Company
Is a Holding Company a Separate Legal Form?
No. A holding company describes a corporate or ownership structure rather than a separate legal form. The holding company can, for example, be organized as a GmbH or UG and hold shares in one or more subsidiaries.
How Much Share Capital Does a Holding Company Need?
The required capital depends on the chosen legal form. For a GmbH, the statutory share capital is €25,000. A UG (haftungsbeschränkt) can generally be established with lower share capital. With a holding structure, however, it must be taken into account that several companies may need to be financed.
How Many GmbHs Do You Need for a Holding Structure?
A traditional GmbH holding structure often consists of at least a parent company and an operating subsidiary. The holding company owns the shares in the subsidiary. Depending on the business model, additional subsidiaries can be added later.
Can I Add a Holding Company Above My Existing GmbH Later?
In principle, an existing corporate structure can subsequently be expanded by adding a holding company. However, transferring existing GmbH shares to a new holding company can have corporate-law and tax consequences. Such a restructuring should therefore be assessed individually before implementation.
When Is a Holding Company Worthwhile from a Tax Perspective?
This depends in particular on the investments held, the income generated, and whether profits are distributed, reinvested, or whether investments are intended to be sold later. A holding structure can be particularly attractive for long-term reinvestment and planned sales of shareholdings. However, the actual tax burden should be calculated based on the planned structure.
Can a Holding Company Be Established as a UG?
Yes. A UG (haftungsbeschränkt) can also be used as a holding company and hold shares in subsidiaries. Whether a UG or GmbH holding company makes more economic sense depends particularly on capitalization, external perception, and long-term business planning.
How Long Does It Take to Set Up a Holding Company?
The timeframe depends, among other things, on whether the parent company and subsidiaries are being newly incorporated, how quickly the notary appointment, bank account opening, and capital contribution can be completed, and how long the competent registry court takes to process the registration. Establishing a holding structure therefore often consists of several coordinated formation steps.
