On July 25, 2012, Bryce Morrison, a partner in the firm’s Taxation Group, presented to a group of colleagues in the law some of the more common reasons for using holding companies.
In general, a buyer or a seller of a business or a company is well advised to consider whether a holding company can be used in the transaction to reduce the taxes on the transaction or to better structure its financing. For example, a buyer that is financing the purchase of shares of a company would probably find a holding company useful to reduce the taxes on the money needed to pay the loan. As well, a seller of shares could possibly use a holding company to reduce the taxes due on the proceeds of the sale of the shares.
The decision to use a holding company is also affected by the additional corporate tax imposed on investment income held in a corporation. However, in many cases where active business income is earned, holding companies can be effective for removing inactive assets from operating businesses.
“Before finalizing a transaction”, Bryce explained, “business owners should ask their professional advisors if a holding company would be useful in the transaction.”
To learn more regarding the use of holding companies, please contact a lawyer in the firm’s Taxation Group.