What is a holding company and what are its benefits in Spain?

All posts Leave a comment   Published on par Jonatan Carbonell

It is possible that you have already heard the term “holding”, but nevertheless, you are not very familiar with its meaning, because this Anglo-Saxon term translated into Spanish means “holding”, and it is used to classify the structure of a certain type of companies. So, you may be asking yourself “What is a Holding Company?”, well, here we will solve this and other doubts that may arise regarding this topic.

Holding Company

So, the definition given to holding companies is not complicated at all, they are a type of company formed by several companies, where there is a leading company that has control over the other companies, because it owns all or most of the shares of such companies.

If we go to the legal aspects, the holding company has its obligations specified in article 42 of the Code of Commerce. Where they must “formulate the annual accounts and the consolidated management report”.

The holding structure can be very beneficial for those entrepreneurs who wish to develop several economic activities through different companies, where by owning a holding company, they can obtain tax benefits that will make the tax rate lower, unlike if they were taxed individually.

According to the provisions of Article 42 of the Commercial Code, the requirements for a holding company to exist are as follows:

  1. To hold the majority of the voting rights in the subsidiary.

  2. To be able to appoint or dismiss the majority of the members of the administrative body of the subsidiary.

  3. To have the majority of the voting rights.

  4. To appoint the majority of the members of the administrative body.

Examples of Holding Companies

In order for you to have a better reference about what a Holding Company means, we will give you some examples. It is possible that you already know some of these companies and you did not even know that they belong, or that they are a Holding Company. That is why you should pay close attention to these examples and ask yourself, why do these companies belong to a Holding Company?

Inditex Group

One of the best examples we can give you is the Inditex Group, this company has the highest economic value in Spain and is the most important company in the textile sector in the world. This company owns the majority of the shares of another group of dependent companies which are: Zara, Zara Home, Bershka, Pull & Bear, Oysho, Massimo Dutti, Stradivarius and Uterqüe.

Its companies have a worldwide presence and more than 150,000 employees. This group is undoubtedly the best example we can give you about holding companies.

The Coca Cola Company

One of the largest companies in the world is Coca Cola Company. This company dedicated to owning beverage marketing companies more than anything else, owns a number of super important companies in this sector, such as: Coca Cola, Fanta, Aquarius, Nestea, Sprite, and many other companies.

We could say that The Coca Cola Company is the largest holding company in the world.

Nestlé

This Holding Company is well known all over the world, as it owns a number of important companies in the food sector, such as Nescafé, Eko, Maggi, Solis, and a large number of other companies: Nescafé, Eko, Maggi, Solis, and a large number of other companies.

Advantages of a Holding Company

We already know what a Holding Company is, which article regulates it and we have given you some important examples that you need to know. But, why do companies decide to apply this type of structure? Well, of course, this type of company has a number of advantages that you can enjoy, here are some of them:

  1. When you own a holding company, you can enjoy many tax advantages, one of them is that the companies are not taxed individually, because its legal seat is the dominant company, that is, the company on which the other companies depend. For this reason, the taxation applies jointly to the activity they are performing, so the tax cost is considerably reduced.

  2. By having a group of companies implemented to a Holding Company, there are shared costs that can help to decrease the joint expense of the companies, this helps the companies because this saved cost can be destined to other sectors or to continue expanding and acquiring other types of companies that benefit the Holding Company.

  3. When a group of companies are together with a dominant company, the image it gives to investors is that it is a reliable company, because it shows that there is a good advice that allows all companies are having a great performance in the market.

  4.  Holding companies, when selling their shares in a company, have the benefit of being exempt from the capital gain generated by this operation, that is, they can enter and leave companies in a very simple and efficient way.

  5. Decision making can be difficult when many companies are owned without a holding structure, however, when there is a holding structure, decision making is centralized and this action can be much easier.

  6. If one of the companies is not doing very well and in the fiscal year it has registered red numbers, Spanish taxation allows to offset them with the profits generated by the other companies of the holding company.

Disadvantages

Although holding companies have many advantages, there are also some disadvantages that you should take into account when deciding whether to implement a holding structure or not. Some of these advantages may be:

  1. When owning a holding company, there is the possibility that the environment becomes very competitive among the companies, this can be a point to take into account.

  2. A consequence of the previous point is that there may be leaks of information within the companies, which may cause a serious problem in the administration and management of the companies.

  3. For the minority shareholders of a company subordinated by the holding company, it can be frustrating not to have so much participation in the decision making process.

  4. As holding companies are very large, a problem that can arise is the implementation of the corporate culture and image, as it can be distorted by the size of the corporation.

  5. Holding companies can cause market monopolization, which governments are against. Therefore, these groups are under constant review by government agencies.

Regulatory Laws

As mentioned above, Holding Companies are regulated by Article 42 of the Commercial Law.

However, this type of companies are also indicated in the Royal Decree 4/2015, of October 23rd.

And, in addition, by the Competition Defense Law 15/2007, of July 3, Title V, article 61.

These laws explain the meaning of Holding Companies, their taxation, and how they should operate.

Conclusion

As we have observed, holding companies have a significant amount of tax advantages, which you can take advantage of if you have family businesses, or if you want to own the majority of the shares of a number of companies. This structure can only be successful if it has a very thorough implementation, that is why in TAS Consulting we offer you our highly qualified human talent to provide you with quality advice, contact us to solve all your doubts!

Published on par Jonatan Carbonell

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