Australia has always drawn businesses and investors due to its strong economy and stable regulatory framework. The holding company is one of the forms that has gained significance in the Australian corporate scene. But what is a holding corporation, and why is it important in Australia? Let’s go deeper.
What is an Australian Holding Company?
A holding company in Australia is a sort of corporation that does not engage in any operations, endeavours, or other active responsibilities for itself. Its primary purpose is to possess assets. Shares of stock in other businesses, limited partnerships, limited liability companies, private equity funds, hedge funds, public stocks, bonds, real estate, trademarks, and almost any other item can be considered as assets.
Procedure to Start A Holding Company in Australia
The steps for the procedure to start a Holding Company in Australia are:
- Select the right structure: In Australia, proprietary limited companies (private companies) and public limited companies are the most common types of structures. Your decision will be influenced by your future business objectives and requirements.
- Register your company with the Australian Securities and Investments Commission: All Australian businesses are required to register. The ASIC provides an Australian Company Number, which is required for all official documents.
- Tax obligations: If your company’s yearly revenue reaches the Australian Taxation Office’s threshold, you must register for the Goods and Services Tax (GST). Understand the Income Tax Assessment Acts of 1936 and 1997.
- Regular Financial Reporting: Holding businesses in Australia are required to publish quarterly financial reports. This is especially true if the company controls other entities.
Benefits of Holding Company in Australia
The benefits of Holding a Company in Australia are:
Safeguarding Your Valuables
One of the primary draws of an Australian holding company lies in its ability to act as a fortress for your valuable assets. Property, intellectual property, equipment – you name it, and a holding company can shield it. The beauty of this setup is that these prized possessions are sheltered from the potential liabilities incurred by subsidiary companies. In the unfortunate event of a subsidiary company facing insolvency or poor performance, your assets remain out of harm’s way.
Mitigating Risk
Australian holding companies are, to a large extent, insulated from the legal repercussions of subsidiary companies. The assets held by a holding company exist as a separate entity, significantly reducing the risk of asset loss in case a subsidiary company faces financial turmoil. It’s important to note that while holding companies usually remain unscathed, there might be exceptions where the holding company is held liable if directors were found aware of performance issues within the subsidiaries.
Tax Efficiency
The tax benefits stemming from setting up a holding company structure are quite substantial. They offer the potential to minimize the cumulative tax liabilities of the holding company and its subsidiaries. This strategic advantage can be further maximized by structuring the entities as part of a tax-effective strategy. Additionally, the possibility of establishing these entities in countries with lower tax rates can be explored. It’s worth noting that recent tax reforms in 2016 have imposed limits on tax savings through international jurisdiction shifting.
Centralized Control
An Australian holding company is not just a guardian of assets; it’s also the conductor of the orchestra. The directors of the holding company usually manage the subsidiary companies, which translates to a centralized management structure. This centralization has a ripple effect, enhancing overall business performance. Moreover, it can pave the way for subsidiary companies to access favourable financing terms and adopt debt-structuring practices that are conducive to their growth.
Asset Centralization
Efficiency is the name of the game in business, and holding companies excel at it. As the centralized custodian of all assets within a group, holding companies streamline asset management, sparing subsidiary companies from the burdensome task. This, in turn, frees up precious time and resources for these subsidiaries to focus on their core activities.
Flexibility in Growth and Development
With the management of assets consolidated under the banner of an Australian holding company, directors gain the agility to diversify their business endeavours more efficiently. Holding valuable assets in this manner empowers operating companies to explore new ventures and exit existing ones without putting group assets at risk.
Ensuring Business Continuity
Setting up an Australian holding company brings with it the gift of succession planning. With a board of directors in place, business groups are better equipped to navigate the challenges posed by the loss or retirement of key individuals. This seamless transition ensures that the wheels of your corporate machinery keep turning without disruptions.
Conclusion
The Holding Company in Australia provides a strategic strategy for firms to secure assets, minimise taxes, and simplify operations. To make educated decisions, like with every business decision, analyse the advantages and downsides and consult with OnDemand International specialists. Contact Us Today.