Holdco
A holdco, short for holding company, is a corporation whose main role is owning shares in another company, called the opco, rather than running day-to-day operations itself. Business owners commonly use a holdco to move surplus cash out of the operating company or to hold shares ahead of a future sale.
Many Canadian business owners run their business through two corporations instead of one: an operating company that runs the business, and a holding company that owns shares in it. The holdco itself typically has no employees or customers; its job is to hold assets, most often shares of the opco.
Why owners set one up
- Moving excess cash or investments out of the operating company, away from its business risk
- Deferring tax on money that is not needed for personal spending right away
- Positioning shares for a future sale or for succession and estate planning
What it does not do
A holdco does not eliminate tax; it defers and reorganizes it. The rules governing how money can move between an opco and a holdco, and what happens when shares are eventually sold, are technical and can change how a deal should be structured. Getting the structure wrong can be expensive to unwind later.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryTax Law
- 02Treadstone LawLegal commentaryExit Options for Ontario Business Owners Compared
- 03Treadstone LawLegal commentaryCorporate Law
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