Understanding What A Holding Company Is

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Alberta Holding Companies

A holding company in Albert is one who’s function is to simply posses assets. They are sometimes referred to as a Holdco. This is in contrast to an operating company that is part of an ongoing business. While from a legal perspective, there is not distinct difference between an operating company and a holding company, there are different reasons as to why you would want to use each.

If you require a holding company, the corporate lawyers at Kahane Law Office are able to set them up quickly and for a flat rate. To learn more about these corporations, please call either of our Alberta locations. For our Calgary team, call us at (403) 225-8810. Or, if you live in Edmonton and surrounding area, please call (780) 571-8463.

Why Use A Holding Company

There are a number of reasons why people use holding companies. Each particular reason is usually based on a person specific reasons or benefits for incorporating. For those who want more information on it, use this link for details on the differences between numbered companies and named companies in Alberta. However, with regards to why to a corporate entity to posses your assets, many reasons exist. For example, some of the more common reasons for using this type of corporation include:

Holding companies for tax planning purposes

Using holding companies is a good idea for may reasons. First, you do not take any income derived from the corporation’s assets as personal income. The tax rate for a corporation is lower than personal tax rates. You may issue funds to you personally as income in years that your employment income is lower or issue dividends. Second, it also allows you to split ownership, income and dividends with a spouse. Third, you may be able to enjoy more tax deduction by using a holdco. Lastly, taxes may be deferred by using a holding company.

Holdco for joint ownership

Using a holdco for joint ownership has its advantages. Paramount is that with a holding company, you can have a unanimous shareholders’ agreement or USA. A USA is a contract between the shareholders. This contract sets out all the agreements between the joint owners. It allows for better control and running of the company. It also sets out what happens if there are problems or if someone wants to sell their share. Setting out all these terms at the beginning can avoid fights and court down the road.

Liability protection

Some people hold their assets in a holding company for liability protection. Because a holding company is not an operating company, there is less likelihood of liability. There are some assets, usually held in holding companies that may be the source of litigation. For example, a rental home may be the location of an accident where the owner is sued. In this case, the amount that a person can recover from the corporate entity (in the absence of fraud, or other similar activities) are the assets of the holding company. This means that the plaintiff cannot go after the shareholder(s) of the company.

How To Save Money On Holding Companies

As holding companies are not operating, they do not usually deal with the public. Consequently, the name of the company is not usually vital. in order to save money, many people choose to use holding companies that are numbered companies. Numbered companies do not require NUANS searches to determine if a name is already in use. Instead, the Province of Alberta issues numbers sequentially, when we submit the application for establishing the corporate entity.

Maintaining These Corporations

With all corporations, if you fail to properly maintain them, you lose all the advantages of them. This means proper maintenance of your minute book. A key aspect of that maintenance is filing your annual returns. The  Alberta provincial government strikes corporations that fail to complete this annual requirement. A requirement also exists to hold a annual shareholder meeting. This is true even if there is only one shareholder. Further, the CRA may reverse some of the tax advantages claimed by the corporation and attribute them to you personally at your higher tax rate.

Disadvantage Of Holding Companies

The disadvantage of using a holding company is the additional cost associated with setting it up. There are also ongoing costs. The ongoing costs include the annual returns (which our firm can do for you to make it easier) and the cost of preparing your Holdco’s annual tax returns. While these costs may be nominal, you must decide if the benefits outweigh the costs.

Calgary Lawyers To Set Up Your Holding Company

The corporate lawyers at Kahane Law Office in both Calgary and Edmonton incorporate your Alberta holding company for you. We do it properly the first time. We are usually able to have the company set up within one or two business days but when you need them fast, establish them on the same day for you. Call today to learn more. In Edmonton: call (780) 571-8463 or in Calgary call: ( 403) 225-8810. Busy running your business? Send us some brief details and email us directly here. We then reach out to you with the steps to start up your new corporation