Why and how to create patrimonial holding?

Are you looking to grow your wealth while taking advantage of an advantageous tax structure? Are you also concerned about the terms of transmission to your heirs? Forming a holding company can be a tool for building and managing wealth that suits your needs. What is a holding company? What are its benefits and how to set it up? Some leads in this article.

definition of asset holding company

An asset holding company is above all a classic holding company, which is a company whose corporate purpose is to hold corporate securities within subsidiaries. To be considered as a holding company, the parent company must own at least 50% of the securities of the subsidiaries.

The holding company provides multiple leverage effects in financial, legal and above all financial terms.

We speak of asset holding when the desired goal is the formation, or even the transmission, of an asset. The Asset Holding Company is aimed at business leaders who wish to optimize their assets or benefit from favorable transmission conditions thanks to the various leverage effects it provides. It is the objective pursued by the holding company that gives it its “patrimonial” character. He has no business of his own. Its sole activity is the management of its interests in subsidiaries (it may also offer services to become a facilitator to take advantage of certain tax measures). Thanks to the holding company, the heritage has been brought together into a single entity.

4 Advantages of a Holding Company

An asset holding company offers several advantages to an investor or manager looking to optimize their assets. The main interests associated with the formation of a holding company are fiscal, financial and legal.

1. Tax Benefits

The main asset of the holding company is tax benefits. They will allow the manager of a holding company to optimize the constitution and transfer of its assets for tax purposes. Let us briefly mention the main tax benefits.

  • tax consolidation : Thanks to tax consolidation, tax is centralized at the holding company level which allows for compensation between profits and losses of subsidiary companies and hence a reduction in overall taxation.
  • mother-daughter diet : With the parent-daughter regime, the holding company benefits from an exemption on dividends received from subsidiaries (with a reinstated shareholding of 5% for costs and charges). These provisions are provided in Articles 223A, 145 and 216 of the General Tax Code.
  • capital gains exemption : When a holding company is formed from the equity securities of the companies that are to be subsidiaries, there is (under certain conditions) a mechanism for exemption from taxation of capital gains on the securities sold. This requires that the securities sold have been held for at least two years (long-term capital gains), which also means that a 12% share for costs and charges is applicable on the gross amount of the maximum-value. The conditions of this mechanism are provided for in article 219 of the General Tax Code.
  • Exemption from Real Estate Wealth Tax (IFI) : The law provides for exemption from property tax on private properties subject to conditions. These assets must be assigned to the industrial, commercial or craft activity of the company subject to corporate income tax and whose corporate securities constitute a professional asset for the taxpayer. These conditions are provided for in Article 975 of the General Tax Code.

Please note, to avail tax exemption on real estate assets, the holding company must be a leader (for more information on different types of holding company, see our dedicated article).

2. Financial Leverage

Establishing a holding company allows you to benefit from considerable leverage in financial terms. It is actually possible to repay the loans taken with the help of dividends. Loans are contracted at the holding company level and not at each subsidiary, resulting in increased borrowing capacity. This is the principle of LBO (leveraged buy out). Please note that this leverage effect is conditional on the subsidiaries distributing dividends on a regular basis, which means good financial health.

The financial tier is not the only one to benefit from the leverage effect with the holding company. As a parent company, the holding company also benefits from legal and operational leverage.

3. Transmission Gain

Overall, the creation of an asset holding company makes it possible to reduce the costs associated with the transmission of assets. Thanks to the tax deferral mechanism provided for in Article 150-0B of the CGI, the manager can make contributions to the company that he controls in the holding company and tax deferral of capital gains received with the transfer (contribution-transfer). derives benefit from. , He then retains the securities while benefiting from the tax deferral. If the manager later transfers his shares (held by the holding company) to his heirs (through a bare-ownership donation), they indirectly keep the company without inheritance tax being applied, and the donor The manager continues to get the benefit of income from the holding company. Upon his death, heirs benefit from transmission at a lower cost.

The holding company also makes it possible to transmit inheritances through successive donations spread out over time in order to benefit from tax deductions.

4. Legal Benefits

In terms of set-up, the creation of a holding company makes it possible for the manager to bring on multiple investors while retaining control of the subsidiaries. This is interesting in the context of inheritance because it allows the manager to bring in capital (via equity investment in the subsidiary or holding company) to new shareholders while retaining control (via the holding company). Hence it is a means of investing without losing control (on the condition of remaining majority shareholder). In the event of a family transmission project, it is possible to bring children to the capital to gradually prepare the succession.

There are many advantages to a holding company. To learn more, we invite you to read our dedicated article.

Limitations of a Holding Company

Despite its many advantages, setting up a holding company is complicated and has some limitations. One of the big risks is the unusual act of management. It is advised to exercise the greatest care at the level of invoice movements made between the holding company and its subsidiaries in order to avoid the risk of adjustments by the tax authorities.

You should also know that the asset holding should be in line with a solid and thoughtful project. It really is a long term commitment. Its hasty dissolution can actually lead to unpleasant surprises in terms of tax (which is very strict). Asset Holding Company follows a strict legal framework and does not really allow free disposal of its assets.

Each situation is different and should be considered on a case-by-case basis. A holding company is not always the most appropriate arrangement for building wealth. Simple formation of SCI may sometimes be better suited. We can only strongly recommend that you have a professional (lawyer, legal tech) with you to identify the best arrangement for your project.

The formation of a holding company follows two main steps. First of all, it is necessary to determine the most suitable position and then complete the necessary formalities.

Which position to choose to create a holding company?

As a reminder, a holding company is the head of a conglomerate, but it is not a legal form in itself. Therefore, when creating a holding company, it is necessary to select its status. It depends on your specific project, expected profit and specific constraints. Certain elements must be taken into account such as the number and quality of partners (family level or external partners), passive or leading holding company, flexible or legally very supervised operations.

It must be remembered that the three statutes are generally favorable to the holding company be it SAS or SARL or even the holding company in SC. For limited family structures or limited number of partners, SC and SARL will be most relevant. That is, civil society requires at least two partners and provides great ease of operation. SARL is more tightly designed from a legal point of view. SAS for its part is meant to develop projects and allows the integration of multiple investors (organizational flexibility and statutory independence).

What are the formalities to be completed?

The formation of a holding company follows the classic steps of forming any company. Once the position is defined, the following formalities will follow:

  • company name (identification of the company as a legal entity);
  • domicile/determination of the registered office (address, place of effective management);
  • Deposits of share capital (intervention of a contribution auditor if in the form of a contribution object);
  • Drafting of Articles of Association (for a holding company, holding equity securities as a main activity);
  • Declaration of Beneficial Owners (DBE);
  • Notice of Creation (Journal of Legal Announcements);
  • Registration of the company with competent CFE.

These are the main mandatory administrative formalities. It is advisable not to forget others, such as the obligation to ensure their activity, for example.

You can view the steps for business formation here, and to learn more about holding company formation and its cost, visit our dedicated article.

questions to ask

How to form a holding company?

A holding company can be created from above (contribution of securities from a pre-existing company), from below (creation of subsidiaries then sole custody of securities) or through partial contribution of assets (contribution of activity in exchange for securities). Social).

Why holding instead of SCI?

The SCI is an interesting tool for transmission of inheritance, just like a legacy or family holding company. However, unlike an SCI, the holding company forms a screen between the holder and the SCI, whereas in an SCI, the securities are held individually (tax implications and higher risk).

What is the tax treatment for the holding company?

The election of an IS will allow you to fully benefit from the tax advantages of your holding company. Don’t panic, the IS option is always possible if you are under IR.

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