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If you intend to set up a company or invest in one, you need to consider how you will own its shares. Owning shares in a company can be in an individual capacity, through a company or a trust. This article sets out the advantages and disadvantages of owning company shares in one company (the operating company) through another company (the holding company), otherwise known as owning shares through a dual company structure.

Dual Company Structure

A dual company structure consists of a holding company and an operating company. The holding company holds 100% of the shares of the operating company and any major assets of the business. The operating company is the entity that the business operates from, holding all contractual agreements with employees, suppliers and clients. It is the operating company that will incur all operating liabilities.

Therefore, a dual company structure is beneficial as it generally protects the holding company’s assets. This company structure protects the holding company’s assets from any liability the operating company incurs through the course of business. 

For example, suppose a client or customer sues your company. In that case, they will have to take action against the company they have a contractual relationship with – this would be the operating company. 

In a dual company structure, the operating company will not hold the company’s major assets. Therefore, there is an extra level of protection. Having your shares of the operating company in the holding company adds extra protection to your investment in the company.   

Advantages

There are several advantages to owning shares through a holding company. The below points outline the main advantages.

Asset Protection

You can ensure the holding company owns all of the business’ valuable assets and intellectual property and that the holding company is ring-fenced from potential liability. This will protect these assets, including the operating company shares, from being subject to any liabilities incurred in operating the business. 

Limited Liability

A company structure provides limited liability to you as a business owner. Any potential liability you might face as a shareholder of the company is limited to the amount unpaid on your shares. A dual company structure provides an extra level of protection. 

A dual company structure minimises risk, as the holding company holds valuable assets. This structure protects these assets from any debts or liabilities incurred during the business operation through an operating or subsidiary company.

Cost

One consideration when setting up a dual company structure is cost. There is an additional cost to set up a dual company structure. You must pay set up and ongoing costs for two companies rather than one. This cost is relatively inexpensive, and ongoing expenses are not significantly higher. 

Disadvantages

Although owning company shares through a holding company presents significant advantages, it is vital to know and understand the following drawbacks:

  • Expense: You would have to pay to incorporate a second company. There are also annual company renewal fees which you will need to pay for both the holding company and the operating company.
  • Reporting requirements: Having two companies would mean having to keep records for two companies.
  • Business activity statements: The complexity of keeping business activity statements can result in additional costs for the business where there are two companies to manage. These costs are not significantly higher. 

Setting Up a Dual Company Structure

Setting up a dual company structure to hold company shares can have many benefits. This structure can benefit your business by providing protection to important company assets and allowing growth through reinvestment of profits in the most tax-effective manner. 

Setting up a dual company structure involves registering two separate companies with ASIC. The holding company will be the shareholder of the operating company, which means the holding company owns the operating company. The owners of the business will be shareholders of the holding company.

It is best practice to seek advice from an accountant or tax professional before setting up a dual company structure. You must understand the individual tax implications of this structure for your business.

Key Takeaways

Despite the costs and complexity involved in owning shares through a company, there are several advantages. The main benefit to owning shares through a dual company structure is asset protection and limitation of liability. However, you can also consider owning your shares through a trust. If you require assistance setting up your duel company structure, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a dual company structure?

A dual company structure consists of a holding company and an operating company. The holding company holds 100% of the shares of the operating company and any major business assets. The operating company is the entity that the business operates from, holding all contractual agreements with employees, suppliers and clients.

What are the advantages to owning shares through a dual company structure?

By owning shares through a dual company structure, you can protect your company’s major assets and limit liability. This is because your holding company will hold 100% of the shares of the operating company. Meanwhile, your operating company is the face of the business and will conduct business operations. If a client has a dispute with your operating company, the assets which the holding company holds remains protected.

What are the disadvantages to owning shares through a dual company structure?

A disadvantage to the dual company structure is the added expenses required. Firstly, you would have to pay to incorporate a second company. There are also annual company renewal fees which you will need to pay for both the holding company and the operating company.

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