What is a holding company or group of companies?

It is becoming increasingly common in the world of small and medium-sized enterprises to hear about holding companies. It is no longer a term reserved for large multinationals, but has become commonplace in the SME business world.

But what is a holding company or group of companies?

The regulation of this type of company is found in Article 42 of the Commercial Code, according to which:

A group exists when a company holds or may hold, directly or indirectly, the control of one or more other companies.

When is one company considered to have control over another?

According to art. 42 Ccom. when:

• Holds the majority of the voting rights.
• Has the power to appoint or dismiss the majority of the members of the administrative body.
• Can dispose, by virtue of agreements entered into with third parties, of the majority of the voting rights.
• Has appointed with its votes the majority of the members of the administrative organ who hold office at the time when the consolidated accounts are to be drawn up and during the two immediately preceding financial years..

One of the characteristics of a holding company is that it is a company whose main activity is to hold the shares of other companies; it does not have a specific productive activity. The term comes from the English word “hold” which means “to have”, i.e. it is a company that holds shares in other companies. It is the companies that “hang” from it that carry out the business activity in which each of them is engaged.

It is therefore a question of creating a company that controls and manages the other companies in the group, which will carry out a specific and independent business activity.

The holding company that manages the group of companies is also known as the parent company, and the basic structure of the group is as follows:

The creation of a holding company has important advantages, both in the organisational development of the company and for tax purposes. Regarding the latter, we recommend reading our previous post which you can consult at the following link: The transfer of shares in a holding company.

Advantages of a holding company

For the purposes of organising our own company, the main advantages of setting up a holding company can be summarised as follows:

• It offers a stronger and more business-like image to both our customers and suppliers, and can even help us to achieve a stronger position among our competitors.
• Economic risk is limited and reduced, thus delimiting the social and corporate responsibilities of each of the companies that make up the group.
• Finally, one of the greatest benefits for the holding company is the compensation of losses between the different companies of the group derived from the activities carried out by each of them.
• Being able to finance the opening of new companies by pooling the profits of all the companies that carry out their business activities, avoiding or reducing as far as possible the costs of transferring funds from one to another, through different commercial operations.

In short, if we are operating in the legal and mercantile traffic through another type of corporate structure or with a mere company, perhaps it would be the moment to consider the constitution of a Holding or group of companies in order to optimise the management and profitability of our companies and new investments.