Do you want to transfer your property under advantageous circumstances? No doubt you must have already heard or even contemplated about the formation of a family holding company. The Family Buy Out (FBO) tool is particularly suited for family holding company intergenerational transmission.
When should you set up a family holding company? What are its advantages and limitations? We explain everything in this article!
What is a Family Holding?
A family holding company is a holding company whose shares are held by members of the same family. It is above all a classic holding company, i.e. a consolidated company (parent company) whose corporate objective is to hold shares in subsidiaries (daughter companies) for the purpose of tax optimization and financial management.
In the context of family, it is a powerful tool that allows you to benefit from multiple benefits and bring all your assets together in one unit.
What are the benefits of a family holding company?
There are many great reasons to form a family holding company.
The corporate objective of the Family Holding Company is the management and holding of equity securities. Thus, it makes it possible to choose in what ways the titles will be distributed among family members and to define a chosen and individual operation (the right of veto, preference).
The parent company allows the introduction of new partners (children) while maintaining holding control and implementing a common policy. Of course there are various operating benefits specific to any holding company (pooling of support functions, realization of economies of scale). Decisions are taken by a single legal person, which facilitates management and family reconciliation.
transmission of heritage
Family Holding Company is a tool adapted to the specific problems of broadcasting a family business. A number of parameters must be reconciled, including the similarity between the successors, the designation of the buyer, the terms of the transition and the departure of the manager.
The family holding company is a means of defining the terms of succession with flexibility and the distribution of powers thanks to the development of statutes. The leader can choose the allocation of shares and voting rights as he sees fit, and therefore retains decision-making power, for example, during a transitional period during which heirs can train in the management of the property. Huh.
Family holding allows transmission of securities in a favorable tax structure. To recall the main advantages of a family holding company in tax matters, let us quote:
Transmission gains with the Dutreil treaty
The Dutreil Agreement is interesting for a family holding company because it allows up to 75% discount on the transfer of securities to heirs and donors. This requires that the transfer be made by gift or inheritance, that the shares transferred have been the subject of a collective individual commitment to conservation and that one of the signatories to this commitment in the end effectively acts as a direction.
Article 787B of the General Tax Code details the conditions for benefiting from the Dutrell Treaty. Please note that the holding company must be the leader in order to benefit from the Dutreil Pact (see the FAQ).
tax consolidation system
Thanks to tax consolidation, tax is centralized at the level of the holding company. Thus, it allows a mechanism to offset the profits and losses of various companies and hence a lower tax. The position of the device is the parent company’s (holding company) holding of 95% of the shares of the subsidiaries.
Benefits of mother-daughter rule
Provided for in Articles 145 and 216 of the General Tax Code, the parental arrangement allows for a tax exemption on dividends transferred from subsidiaries to the holding company. Its objective is to avoid double taxation of profits (at the level of subsidiaries and parent company).
We have listed only the main benefits, but the list is not exhaustive. Subject to compliance with the required conditions, you will also be able to avail benefits from other tax measures, exemption of capital gains and income from participation, exemption from tax on immovable property property (IFI), etc.
Would you like to know more about the benefits of a holding company? Find our dedicated article.
Be careful though. Even if a holding company proves to be a prudent solution for the purpose of acquisition or family transmission, it is advisable to be aware of its limitations. The holding company requires actual administrative management which can prove to be cumbersome (especially the obligation to prepare consolidated accounts according to size and turnover) and tax risk (more adaptation with the risk of recovery, impossibility of deducting VAT ) Presents. To avoid these risks, it is recommended to stick with professionals.
How to create a family holding?
A family holding company is an arrangement to facilitate transmission. How to proceed with building your family holding company.
top or bottom construction
From the point of view of editing, the holding company can be formed “from above” or “from below”.
A top-down holding company is a holding company created from a contribution of securities from a pre-existing company.
Conversely, in bottom-up holdings the parent company’s activity leads to the creation of subsidiaries (new companies) that will only retain securities, thus becoming the holding company. This is a complex operation that often requires the intervention of an auditor.
In the case of a family holding company, the manager shall make a charity-sharing for the benefit of his children, who shall contribute their shares in the holding company established for the occasion.
Family Holding, Stages of Creating a Classic Business
Formation of a family holding company follows the rules of the constitution of any company. Therefore the classic steps of forming a holding company must be respected: determination of corporate purpose, election of legal status, drafting of articles of association, deposit of share capital, registration process.
If the choice of position is free (SARL, SAS, SC), it is never trivial. This will depend on the project, benefits sought and the family context (number of partners, operating rules, taxation, leading or passive holding company).
For a family holding company, consider the best-case scenario with respect to the distribution of capital and power, as well as the specific constraints associated with disseminated activity. SAS as well as SC have the advantage of providing flexible governance, but SARL will be more protective for participants not accustomed to management. Don’t hesitate to seek the advice of professionals (lawyers, accountants, legal techs) to make the best choice.
questions to ask
What is Family Buy Out?
Family Buy Out is a combination of wealth management tools aimed at facilitating the transfer of business within the family structure. This notably includes the creation of Donation-Partage, the Duetrel Pact and the Family Holding Company.
How to benefit from Dutreil Pact?
A large proportion of family holdings are dormant (corporate purpose is limited to the holding of corporate securities). Please note, to benefit from the Dutreil Pact, the family holding company must be a leader (active participation in the conduct of the policy, control of subsidiaries, provision of services) at the time of transmission of securities covered by the Pact.
Should the donations be strictly equal among the heirs?
Not necessarily. The recipient may profit from most or all of the securities sold. In this case it is up to him to pay the balance amount to his co-heirs. Thereafter the holding company will be set up on the basis of securities contribution and cash payment.