You’ve been building your agency for a few years now and it has its challenges the same as most do. It can be turbulent at times.
Staff come and go in the same way that clients and projects do, and the unpredictability can lead to some sleepless nights.
Despite all of that you have a solid agency that you love and is worth protecting and structuring in the right way. One option we see a number of agency owners considering is to set up a holding company.
How a holding company could benefit your agency
A typical structure would be a holding company that owns 100% of the shares in a trading company which then allows the individual shareholders to own their respective stakes in the holding company.
The first advantage that brings is that it allows assets such as cash, property or IP to be held in the holding company and protected from any legal issues that the trading company encounters.
This is a big deal when you consider what those assets could be worth and how creditors now don’t have access to them. If a client was to kick up a fuss about the marketing campaign you had delivered for them and was looking to claim damages, it would be the trading company that they’re in a contract with and the assets of the business that are in the holding company would not be at risk.
On a similar note, there is extra flexibility in that dividends can be transferred into the holding company tax-free. Normally when drawing dividends out of your business you need to consider the personal tax implications and do some planning to make sure you’re doing so in a tax efficient manner.
Tax rates, allowances and timings must be considered. On the other hand, if you’re transferring dividends into the holding company, there is no tax to pay which means you can extract the cash from the trading company as and when you wish. The shareholders can then make a decision to invest the cash wisely or vote dividends from the holding company when it’s tax efficient to do so.
Some do say it’s an unnecessary complication where the tax advantages can be negligible and don’t outweigh the admin required. There are HMRC and Companies House submissions to complete each year which come at a cost. If your agency doesn’t have significant assets it could be that you don’t really benefit from the added protection. As always the best option is to run the numbers and take some professional guidance. What works for one agency doesn’t always work for the next.