Multiple Company Incorporations

A commonly used structure for multiple companies involves two separate entities: the operating company (OpCo) responsible for conducting the main business operations, and the holding company (HoldCo) which fully owns OpCo.

The Holding Company (HoldCo)

A holding company, commonly known as Holdco, is a business entity mainly created to hold investments or shares of other companies. Unlike other companies, Holdcos do not produce goods or offer services.

One common type of Holdco is a corporation that holds shares of another company engaged in active business operations. By creating a barrier between the business owner and the operating company, this structure enables profits to be channeled and retained within the Holdco. Additionally, a Holdco can also be used to manage investments like a portfolio of marketable securities or rental properties, instead of holding them under an individual’s name. The ownership of HoldCo is typically held by the individuals involved in the primary business, including their respective personal holding companies. This structure offers various benefits related to both liability and tax efficiencies.

The Operating Company (OpCo)

OpCo is solely responsible for bearing any risks related to the business operations, with any legal actions being directed solely against it. This means that any assets necessary for conducting the business will be at risk. However, when it comes to taxation, parent and child corporations can exchange dividends tax-free in Canada. Therefore, when OpCo generates profits, it can pay dividends to HoldCo, which can then accumulate and safeguard the wealth generated by the business, while OpCo remains nimble and efficient.