Creating a holding can be an excellent tool to structure and optimize your corporate organization in France. When should you consider setting up a holding, and where do you begin?
1. What is a holding company?
A holding company is a legal structure that allows one to own and control multiple companies. Its main objective is to organize various entities under a single parent company, providing a more comprehensive and strategic approach to managing the overall activities of the group. In France, creating a holding company is often used to gain tax advantages, simplify the management of a corporate group, or optimize the estate planning and wealth management of business owners. This solution offers numerous opportunities, but it requires careful preparation and well-informed decisions.
2. Why should you think about creating a holding company in France?
Creating a holding company is not a decision to be taken lightly. It often follows strategic long-term planning regarding growth, organization, and risk management for both the company and the business owner.
Here are the main reasons why you might consider setting up a holding company:
2.1. Tax advantages
One of the primary benefits of creating a holding company is tax optimization. For example, profits transferred from subsidiaries to the holding company can, under certain conditions, be largely tax-exempt thanks to the so-called “parent-subsidiary” regime. This regime allows the holding company to receive dividends from its subsidiaries with a tax exemption of up to 95% of the dividend amount. Additionally, the holding company can deduct expenses related to the acquisition of subsidiary shares, which can reduce the taxable base.
Another tax benefit motivating the creation of a holding company is the tax consolidation regime. This regime allows the holding company and its subsidiaries to consolidate their tax results, thereby offsetting the profits of some entities with the losses of others, thus reducing the overall tax burden of the group.
2.2. Governance and group management
Creating a holding company allows for centralized control of multiple companies. The parent company, or holding company, holds shares in the subsidiaries, which enables it to define and manage the overall strategy for the entire group. This structure allows for risk diversification by separating the activities. For example, if one subsidiary faces financial difficulties or legal risks, the other subsidiaries within the group will not necessarily be impacted.
In terms of management, the holding company can also simplify strategic decision-making, especially by centralizing major decisions at the level of the parent structure. This helps coordinate activities and ensures better governance.
2.3. Optimizing compensation for top management and shareholders
Structuring and optimizing executive compensation is a key issue when setting up a holding company and its subsidiaries. The chosen legal form also influences compensation options.
- Salary Compensation: If the founder is the president of an SAS (simplified joint stock company), their salary is subject to the usual social charges applicable to salaried workers. In contrast, in the case of an SARL (limited liability company), if the founder is a majority shareholder, they fall under the self-employed social security scheme (TNS), which is generally less expensive in terms of social charges but involves different social security coverage.
- Dividends: The holding company also allows dividends from subsidiaries to be transferred to the parent company and then redistributed to shareholders, including the founder. The legal form (SAS or SARL) has tax implications for this distribution, particularly concerning social contributions.
- Benefits and perks: Depending on the chosen legal form, it is also possible to optimize compensation through benefits in kind (company car, reimbursement of expenses).
2.4. Estate planning and wealth transfer
A holding company is an excellent tool for business owners to prepare for the transfer of their business assets. For example, by grouping the shares of different companies within a holding company, the business owner can better organize the transfer to heirs while benefiting from advantageous tax arrangements, such as the Dutreil pact, which allows for partial exemption of inheritance and gift taxes under certain conditions.
2.5. Financing Opportunities
Setting up a holding company can facilitate access to financing. For instance, a holding company can borrow funds to finance the acquisition of shares in subsidiaries (external growth operations), and the dividends received can then be used to repay the loan. This technique is commonly used in LBOs (leveraged buy-outs), which allows for the acquisition of a company using financial leverage.
3.Different types of holding companies
Before creating a holding company, it is essential to choose the type of structure that best suits the company’s objectives. Here are the two most common types of holding companies:
3.1. Active holding company
An active holding company, or holding animatrice, not only owns shares in subsidiaries but also actively participates in the group’s policy and manages its subsidiaries. This type of holding company is often preferred when structuring a group where the parent company plays an operational role.
The advantage of an active holding company is that it benefits from more favorable tax arrangements, such as exemptions under the Dutreil Pact for estate planning purposes.
3.2. Passive holding company
A passive holding company, on the other hand, limits itself to owning shares in other companies without directly participating in their management. This type of structure is more suitable for investors who wish to consolidate their holdings without involvement in day-to-day management and/or reinvest the profits from operating companies into other investments, such as real estate.
4. Key steps to create a holding company
Setting up a holding company involves several important steps that need careful planning. Here are the main ones:
4.1. Define the objectives of the holding company
Before creating a holding company, it is crucial to clearly define the objectives. Are you aiming to optimize taxation, structure activities, limit legal and financial risks, prepare for a future transfer, or facilitate access to financing? Defining these objectives will help you choose the appropriate legal structure and develop the most suitable strategy.
4.2. Choose the legal form
In France, a holding company can take different legal forms. It is typically established as an SAS (société par actions simplifiée) or SARL (société à responsabilité limitée), but other forms (such as société civile) are also possible. The choice of form will depend on the objectives of the holding company, the desired level of liability, and the planned rules of governance.
4.3. Contribution of shares or acquisition?
A holding company can be established in several ways:
- Contribution of Shares: The shareholders contribute the shares of the subsidiary to the holding company in exchange for shares in the new structure.
- Acquisition of Shares: The shareholders sell their subsidiary shares to the holding company, which must then borrow funds to acquire these shares.
- Simple Incorporation: The holding company is incorporated as a regular company (with a cash contribution) and gradually acquires the shares of target companies.
Each option has legal, tax, and estate implications that should be analyzed before making a choice.
4.4. Draft the articles of association and legal formalities
Drafting the articles of association is an important step when creating a holding company. The articles must specify the corporate purpose, rules of operation, rights of shareholders, and distribution of powers. A shareholders’ agreement may also be advisable if there are multiple shareholders. Once the articles are drafted, the holding company must be registered with the relevant authorities.
5. Governance Issues in a Holding Company
Establishing a holding company also presents significant governance and management issues. These issues must be well understood before structuring a group.
5.1. Distribution of voting rights
Control over the holding company, and consequently its subsidiaries, depends on the distribution of voting rights among shareholders. It is crucial to define this distribution properly to ensure governance stability and avoid potential deadlocks.
5.2. Centralization of strategic functions
The holding company can centralize certain strategic functions (such as human resources, marketing, or finance), which allows economies of scale and standardizes practices across the different entities within the group. However, this centralization must be balanced to avoid impairing the operational autonomy of the subsidiaries. If management fee agreements are implemented, they must meet strict criteria to avoid tax adjustments.
6. Risks and pitfalls to avoid when creating a holding company
Creating a holding company offers many benefits, but it is not without risks. Here are some common pitfalls to avoid:
6.1. Failing to anticipate objectives and the role of the holding
If a holding company holds numerous real estate companies (SCI) and owns a predominantly real estate portfolio, it may not be considered an active holding company, which can, for example, prevent it from benefiting from the Dutreil Pact.
6.2. No shareholders’ agreement when needed
A shareholders’ agreement helps secure decision-making within the group and reduces the risk of deadlock if a shareholder decides to leave.
7. Case study
Consider the owner of a construction SME who wants to structure its activities to improve efficiency, protect their assets, and prepare for future succession. This owner could create a holding company to centralize the management of subsidiaries specialized in different areas, such as residential construction, property development, and energy renovation. Through this structure, the holding company can centralize certain administrative, financial, and commercial functions, thereby simplifying resource management and reducing costs.
In this scenario, the holding company will be set up as an SARL to take advantage of a more stable legal framework and effectively combine salary and dividend compensation while benefiting from appropriate social security coverage. The subsidiaries will be set up as SAS to benefit from flexible governance and optimize voting rights distribution among shareholders, as well as the signature of a shareholders’ agreement.
By organizing in this way, the business owner can also prepare for the transfer of the business to their children, optimizing tax through the Dutreil Pact while maintaining control over the group’s overall strategy. The pooling of financial and human resources will facilitate operational efficiency, and the parent-subsidiary tax regime will contribute to reducing the group’s overall tax burden.
8. Why should you seek professional guidance ?
Creating a holding company is a complex process that requires strategic planning, thorough legal and tax preparation, and careful management of human and operational aspects. Given the numerous choices to make, including legal structure, tax optimization, compensation, and subsidiary control, it is essential to seek guidance of professionals such as specialized corporate lawyers, accountants, and financial advisors will help secure each step of the process. By collaborating with experts, you can avoid structuring errors, hidden costs, and potential legal risks.
At Slash Avocats, we offer tailored support to help you create and structure your holding company under the best conditions. We assist you in choosing the most suitable legal form, optimizing taxation, and preparing for the smooth transfer of your business assets. Our experts can also advise you on setting up shareholders’ agreements and managing voting rights to ensure stable governance tailored to your objectives.
Have you considered creating a holding company? What are your main concerns? Contact us to discuss your project and define the most appropriate strategy to effectively and sustainably structure your activities.