How to Open a Holding Company in Ontario

Holding companies are a common term that many people associate with large corporations and overseas accounts in Canada. In large Canadian centres such as Vancouver, holding companies are quite common. What are the advantages of a holding company?1. A holding company can help protect assets and protect creditors. Investments held by a holding company can take many forms, including: Instead of keeping personal investments, Harvey starts a holding company and invests his money in the company. Due to the holding company`s lower tax rate, he only has to pay $19,300 in taxes on interest income. If the holding company is to have an official name, a $20 fee must be paid to obtain a NUANS report that verifies that the name is authorized and is not confusingly similar to another name. It is not necessary to have an official name, but the company is identified by the number assigned to it by Corporations Canada, e.B. 1234567 Ontario Inc. Since holding companies can be involved in a number of different companies, investors can use the financial power of a holding company. By buying only 50% of a company`s shares, holding companies can diversify their investments. However, you can also have wholly-owned subsidiaries where the holding company owns 100% of the shares.

There are several advantages to having a holding company registered in Canada. These benefits depend on how the company is registered: as an investment holding company or as an operating holding company. Those who set up holding companies in Canada benefit primarily from: We have looked at many of the advantages of holding companies, but there are also disadvantages. Many of them are the same things to think about when deciding whether or not to start a business. The holding company is a joint entity established for the purpose of collecting various assets such as real estate, shares, assets or even other companies under one roof, or rather under another company that has control over them. There are several types of holding companies that can be registered in Canada, the most popular of which is the investment holding company. In addition, Canada Companies recognizes holding companies. The way it works is that the current shares become preferred shares and those shares are frozen at a value equal to the current value of the company. The new shareholders then receive common shares at minimal cost and, as mentioned above, future profits accrue to them.

Despite these advantages, a holding company can put you at a disadvantage. For example, the annual cost of registering the business and preparing financial statements can be significant. Taxes and legal fees are also becoming increasingly complex. In addition, it is possible that the losses incurred by the holding company may offset the profits made or the income generated. As the sole shareholder of the new holding company, you can transfer ownership of the operating company`s excess operating capital to the holding company in the form of a dividend. Since dividends between private corporations controlled by Canada (owned by the same person) are tax-free, you can transfer the money without negative tax consequences. A holding company is exposed to risk only from the amount of its stake in the operating company. In this example, Aviato Inc. failed the core asset test because less than 50% of its assets have been used in active businesses in the past 24 months. Term deposits of $250,000 represented approximately 80% of the company`s assets.

The registration process for a holding company is the same as for any other company in Canada. Decide whether the company will be registered at regional or national level. If you want the company to have an official name, you must order a NUANS report to ensure that the proposed company name is available and is not used by others as a trademark or company name. However, it is not necessary to have an official name. Instead, the business is identified by a unique number assigned to it by Corporations Canada. THE owner of RBC Venture can help you start, manage and grow your business. Whether you want to sign up or start your first business or automate legal work for an existing business, Ownr has the tools your business needs. It has all the legal tools necessary for business growth, including inventory management, employment contracts, company updates, etc. The Canada Small Business Deduction (CSD) allows Canadian-controlled private corporations (CCPCs) to pay a lower tax rate of $500,000 on their first active business income.

For affiliates, you can allocate a portion of this $500,000 limit to the other company so they can take advantage of the lower interest rate. Your holding company has no active business income, but any passive income generated within the holding company may affect access to the SBD for the associated operating company. The first of your choice may vary depending on your situation and the objective of your business. For example, as a sole proprietor, you may not be able to afford to take on the company`s debts yourself. Therefore, it`s best to start your business if you can`t afford to be responsible for your business. A good starting point to better understand holding companies and whether or not companies should use them is to define what a holding company is. It also has the effect of freezing Tom`s current position in the company. This limits the income tax arising from the presumed sale of his shares upon his death. It`s a shame to have to think about it, but it`s part of an accountant`s job! Another type of company that also serves a specific purpose is that of a holding company. This type of business structure differs in function from your typical small business structure.

Tax savings are another reason for you to have a holding company. If you have transferred income from your operating company to your holding company, the individual shareholders of the holding company can withdraw their income or dividends if necessary. If your family members are also shareholders and their personal income is lower, it may make more sense for them to receive the dividends. To form a holding company, you can be incorporated as a limited liability company (LLC) or as a corporation, although most small business owners constitute an LLC holding company because it offers greater asset protection. You can also open your holding company in a state other than the operating company to get a more favorable tax structure. No matter how you decide to start your business, you`ll need to register your business with your state, open a bank account specific to your business, and get financing for investments. For more tips from our financial co-author on how to run your business, read on! Another reason to shift retained earnings from the operating company to the holding company is tax planning. You may be able to shift retained earnings in the form of tax-free dividends that can then be reinvested.

You can also choose to keep all of your company`s assets in your holding company, including land, buildings, vehicles, etc. Then you would simply let your holding company`s operating company pay a monthly rent for the land or building. Tom can perform a so-called estate shutdown with the help of a holding company. The cessation of Tom`s share succession in Callahan Auto Parts Ltd. allows him to make Tommy a shareholder and transfer all the future growth of the company to him. It also allows Tom Sr. to keep control of his business. The Articles of Association contain a number of sections in which legal advice may be useful, in particular with regard to information and rules on the Company`s shares. Since a holding company may have a complicated share structure or unusual share restrictions, particular attention should be paid to these sections of the articles of association. Tom Callahan Sr. owns a brake pad manufacturing company in Manitoba called Callahan Auto Parts Ltd.

When he retires, he will want to transfer the business to his son Tommy Callahan Jr. Another advantage of a holding company is when it comes to estate planning or freezing your estate. This means that the shareholder`s stake in the company is frozen and new shareholders (usually children) come into possession. At that time, all future profits will go to the “new” shareholders. Bob`s Building Co is a medium-sized construction company specializing in the construction of office buildings. Bob Loblaw, the owner, founded the company ten years ago. Since then, it has enjoyed some success, making a profit of $250,000 each over the past four years after paying the owner`s salary. These profits stayed with the company and Bob invested the money in safe and interest-bearing investments. The Canadian holding company can also be a great estate planning tool.

It can also register for VAT in Canada. We invite you to watch our video on the Canadian holding company: “If you would like to register a holding company and need assistance, please contact our business start-up advisors in Canada.