The Benefits of a Holding Company and Operating Company Structure
By Jonathan MacKenzie @JMacKenzieLaw | September 22, 2014
Many business owners are aware of the numerous benefits to running your business through a corporation. What they might not be aware of, however, are some of the advantages that may be available to them through structuring their business holdings into an “operating company” (an OpCo) and a "holding company" (a HoldCo).
Separating your business interests into an OpCo and a HoldCo entails having a corporation which carries on active business (the operating company) and one that holds the shares of the operating company (the holding company). There are a number of advantages that business owners can make use of by structuring their business this way.
Some of the advantages you can make use of by using an OpCo and a HoldCo organization are as follows:
You can use your HoldCo to shelter any excess income or assets from the OpCo’s secured creditors.
Tax-Free Dividends & Efficient Reinvestment:
You can pay dividends from your OpCo to your HoldCo on a tax-free basis in most situations. This allows you to use this money to make investments through the HoldCo without first paying the dividend tax.
$750,000 Lifetime Capital Gains Exemption:
Having a HoldCo may allow you to take advantage of the $750,000 Lifetime Capital Gains Exemption.
Income Splitting & Estate Planning:
You can use your HoldCo to split income amongst various people, including family members, so as to reduce your overall tax liability. You can also use your HoldCo for efficient estate planning purposes.
You may be able to locate your HoldCo in a province that has a lower corporate tax rate.