Q. Should I have a holding company?
A: Investment holding companies are generally utilized to hold the shares of your operating company. Sometimes these companies are structured as “sister corporations” to facilitate other tax planning.
Dividends paid on a tax-free basis from Opco to Holdco are generally not available to creditors or potential creditors of Opco.
The use of holding companies facilitates distributions to different families who are shareholders of Opco.
Holding companies may hold real estate used by Opco. Rental income may be taxed on a preferential basis.
Holding companies also facilitates income splitting and estate planning if properly structured so that future appreciation of specific assets may indirectly accrue to other family members.
Currently the taxation of investment income is not less costly the taxation of active business income, however the long and short-term benefits of utilizing holding companies may outweigh other costs.
You should consult with your professional advisor on all related matters.