A holding company is a corporation that owns shares of another company (usually your operating business) rather than running operations itself, used for creditor protection, tax deferral and estate planning.
A holding company (holdco) sits above your operating company (opco) and owns its shares. Profits can move from opco to holdco as tax-free inter-corporate dividends, letting you pull surplus cash out of the operating business, away from its creditors, while deferring the personal tax you would pay by taking it yourself.
The main benefits are creditor protection (wealth sits outside the operating risk), tax deferral on retained surplus, and estate planning such as freezes and purifying opco shares for the capital gains exemption. The cost is a second corporation to file and maintain, so a holdco usually pays off only once real surplus is accumulating.
Your operating company earns more than you spend. Instead of leaving the surplus exposed to business risk, it pays a tax-free dividend up to your holdco, which holds the cash and investments safely outside the reach of the opco's creditors.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
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