# How do you Set up a Holding Company



## steakman

Currently incorporated (named). I am looking at setting up a holding company within my operating company here in Alberta. What does one physically have to do to make this happen.? Do I go to the registry and ask this to be done there.?? What are the mechanics of this I guess may be a better way of asking. I am going to assume that part of this is "selling" or assigning the current shares in the operating company to the holding company. If so, how is this done.?

I am also assuming that certain resolutions need to be made as well..?? pls explain in lay terms as best you can.

Basically I am asking you to tell me everything that I need to know in order to make this happen folks.!

thank you muchly in advanz of your replies.!
cheers,
Stk


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## The Financial Blogger

Hey Steakman,

it's not that easy. I suggest you meet with an accountant.

Why do you want a holding in the first place? is it to invest your liquidity generated by your incorporation? a Holding company has the same constitution process as any other incorporation. The only difference between the 2 business is the fact that one is an operating business and the other one is used to invest money (through real estate, stock market, etc). Transferring your money from your inc to your holding will "purify" your inc and make it available for the 750K capital tax exemption upon the sale of your business.

I hope it helps!


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## steakman

It does - Thanx!

Ok. so it has the same constitution process as my original Opco. As such then, I can simply go to my provincial registry (privately owned/operated here in Ab), and tell them I want to set up another incorporated company. Designate ownership to be my Opco, Get the Nuans search done - give it a name, and bingo I have a holding company...correct?

Thank you,

Stk


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## Charlie

If your OpCo owns your HoldCo, your HoldCo assets are still at risk from OpCo liability. They also count against your active assets for 750K cap gains exemption. It's easy to set up a new company....but if you're trying to achieve something specific with this, might be a good idea to check with someone who does this stuff for a living...


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## FrugalTrader

There are some details and structure that you need to work out before you actually register HoldCo. Are you going to roll over all OptCo shares to Holdco (you can do this tax free - consult an accountant for details)? Or is Holdco going to own some shares of Optco?


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## sharbit

Why are you doing this? There aren't really any tax advantages over a properly structured corp; only legal


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## FrugalTrader

A holding corp will help to purify the optco to take advantage of the $750k lifetime capital gains exemption if he decides to sell optco (if he sets it up correctly). As well, it will help creditor proof optco.


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## sharbit

I'm basing this on his previous threads. I could be missing something though or wrong about the following comment:

if optco's revenue exists soley through stakemans labour then the business would likely not have any value because revenue would cease to exist as soon as he left. So, he's esentially just getting another co to report on; including associated charges of maintaining that co. Compare that to your blog, which if you cease to be associated to it, significant value would still exist.


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## Homerhomer

If set up properly holdco will not be sued for what opco did, imagine you have couple of millions sitting in opco account, is few thousand per year worth protecting it?


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## sharbit

FrugalTrader said:


> A holding corp will help to purify the optco to take advantage of the $750k lifetime capital gains exemption if he decides to sell optco (if he sets it up correctly). As well, it will help creditor proof optco.


Also, I had to double check this; are you reffering to the requirement of >50% active business income for 24 months?


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## FrugalTrader

Sounds about right, I'm not sure about the exact numbers. However, as a general rule, the more cash or passive income that you have in your optco, the less likely you'll qualify for the capital gains exemption.


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## The Financial Blogger

FrugalTrader said:


> Sounds about right, I'm not sure about the exact numbers. However, as a general rule, the more cash or passive income that you have in your optco, the less likely you'll qualify for the capital gains exemption.


here are the rules:
- 50% for the past 2 years
- 90% of assets in the company at the time of selling must have been used principally in an active business carried on primarily in Canada by the corporation or a corporation related to it.

source: http://www.taxtips.ca/smallbusiness/qualifiedsbcshares.htm

if you are looking to save taxes, another option is to open a Trust and send your optco shares in it. Then again, the best advice is to meet with an accountant for such strategies!


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## TaxGuy

Agreed. Another corporate entity requires another tax return and all the other trappings. 

They are helpful for creditor protection or when multiple owners are involved. 



sharbit said:


> Why are you doing this? There aren't really any tax advantages over a properly structured corp; only legal


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## TaxGuy

Purification possibly. But you could simply wait until the time of sale and evaluate it then. The compliance costs over the years plus the butterfly transaction could be very costly. 



FrugalTrader said:


> A holding corp will help to purify the optco to take advantage of the $750k lifetime capital gains exemption if he decides to sell optco (if he sets it up correctly). As well, it will help creditor proof optco.


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