Holding Company and Asset Protection

I have recently met with several clients who have encouragingly achieved very profitable results and have accumulated significant cash and profit/loss reserves.

While this strengthens the balance sheet and improves credit ratings, these reserves are not always comfortably reported. Not only can customers ascertain how well our client has performed but also these reserves are potentially left at risk!

Increasingly we are discussing with clients ways to protect any surplus cash that is not required for working capital purposes and ways to reduce any trade risk.

There is always the possibility that something could go wrong with a particular contract or job. There could be an uninsured loss, or disaster, and significant/surplus cash on the balance sheet could be potentially targeted for such claims. If anything were to go wrong, it could affect the whole business and could have a negative impact on the cash and profit/loss reserves that have accumulated within the business over many years.

“What can be done?”

Some clients already have a holding company structure in place, although are not always being utilised for asset protection purposes. Alternatively, a simple holding company can be put in place.

Once the holding company is in place, it can be used for asset protection purposes and any surplus profit/loss reserves and cash can be voted up as dividends to the holding company, thereby becoming separated and protected from the main trade.

Holding companies which do not carry out a trade, and only exist to protect the reserves of the trading company and to receive and pay out dividends are usually not classed as an associate company for corporation tax purposes. From 2015/16 the number of associated companies does not affect the corporation tax rate paid, but this could change in future. Additionally, any dividends voted up to the holding company are not subject to corporation tax.

Ring-fencing assets and helping to hedge the risks of trading are important areas for our clients. We are always keen to discuss holding company opportunities with our clients to help protect their long standing efforts.

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