Find out how estate planning works through a holding company and how this strategy can help protect assets and facilitate the transfer of assets to heirs. Read our article now!
One of the biggest challenges faced by entrepreneurs is ensuring business continuity after their death or disability. This is because, in addition to the emotional issues involved, it is necessary to deal with the complexity of the transfer of assets, taxes and succession.
In this context, succession planning via holding company has proven to be an efficient strategy to ensure business continuity, preserve assets and reduce tax impacts. But how does this strategy work and what are its main advantages? That’s what we’ll see next.
What is a holding company?
A holding company is a company created for the purpose of controlling other companies. It can be classified as pure (when it does not carry out operational activities) or mixed (when it carries out operational activities and controls other companies).
One of the main advantages of creating a holding company is the possibility of reducing costs and taxes. This is because the controlled companies can benefit from tax incentives and more efficient management, which results in a reduction in costs and, consequently, in an increase in profitability.
In addition, the holding company also offers advantages in terms of succession planning, since the transfer of assets between controlled companies is simpler and less costly than the direct transfer of assets.
How does succession planning via holding company work?
Succession planning via holding company consists of creating a holding company that will control the group’s companies. In this way, the entrepreneur transfers control of the companies to the holding company and can establish clear rules for the transfer of assets after his death or disability.
These rules may include the distribution of holding shares among the heirs or the sale of shares to third parties, for example. In addition, the entrepreneur can also establish rules for the management of controlled companies, such as the appointment of an administrator or the creation of a board of directors.
What are the advantages of succession planning via holding company?
Among the main advantages of succession planning via holding company, we can highlight:
Reduction of costs and taxes
By creating a holding company, it is possible to benefit from tax incentives and more efficient management, which results in a reduction in costs and, consequently, in an increase in profitability.
By transferring control of the companies to the holding company, the entrepreneur can guarantee the continuity of the business and the preservation of assets.
Flexibility in asset transfer
The holding company offers greater flexibility in the transfer of assets between the controlled companies, which makes the process simpler and less costly.
Establishing clear rules
The entrepreneur can establish clear rules for the transfer of assets and for the management of controlled companies, which avoids conflicts and guarantees a smooth transition.
The equity holding company cannot be created to avoid paying taxes
At the end of the process of creating the holding company and transferring assets and rights, it is necessary to register the company with the Board of Trade and the Real Estate Registry Office, if there are properties involved. It is also important to point out that the holding company cannot be created with the sole purpose of reducing or avoiding the payment of taxes, as this may constitute the practice of tax avoidance, which is considered illegal.
It is worth remembering that succession planning through a holding company is not the only option available to companies and is not always the most suitable. It is essential to seek guidance from an expert in business and tax law, who will be able to assess the specific case and point out the best strategy to be adopted.
Succession planning is an important issue to be considered by entrepreneurs, mainly due to the tax and equity implications involved. The creation of a holding company can be an interesting alternative to protect assets and facilitate the transfer of assets to heirs.
Through the holding, it is possible to centralize the administration and management of assets and rights, in addition to ensuring greater legal certainty and asset protection. Furthermore, the creation of a holding company can generate significant tax benefits, as long as it is done legally and appropriately to the needs of the company and its partners.
It is important to note that succession planning is a complex process that involves several legal and tax issues, requiring the guidance of a specialized professional. Therefore, it is advisable to seek the support of an accounting firm, which will be able to offer the resources and knowledge necessary for the elaboration and execution of an efficient succession planning.
If you want to rely on experienced accounting advice, capable of providing the best strategies for your company to improve financial performance, get to know CLM Controller’s solutions now.