Holding Companies: When Does It Make Sense for Your Business?
Givens LLP | August 25, 2026
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As a business grows, owners often hear the same piece of advice: “You should set up a holding company.”
A holding company, or “HoldCo,” can be an effective tool for managing corporate wealth, reducing exposure to operating risk, and creating greater flexibility for future tax and succession planning. But it is not automatically the right solution for every business.
The decision to establish a holding company should be based on the business owner’s objectives, the amount of capital being accumulated, and the plans for that capital. Setting up an additional corporation simply because it is common practice can add unnecessary cost and complexity if there is no clear purpose behind the structure.
So, when does a holding company make sense and what should business owners consider before setting one up?
What Is a Holding Company?
A holding company is a corporation that primarily holds investments or other assets rather than carrying on an active business.
A common corporate structure looks like this:
- Operating Company (OpCo): The corporation that carries on the active business, generates revenue, employs staff, and assumes the day-to-day operational risks.
- Holding Company (HoldCo): A separate corporation that may hold investments, shares of other corporations, surplus cash, or other assets.
The purpose is to separate the business operations from assets that have accumulated as a result of those operations.
For example, an operating company may generate more cash than it needs to fund its working capital and ongoing growth. Rather than leaving all of that capital within the operating company, there may be an opportunity to move some of it into a holding company, where it can be used for investment or future planning.
The appropriate structure will depend on the circumstances and should be considered before significant assets have accumulated.
When Does a Holding Company Start to Make Sense?
There is no specific level of revenue or profitability at which every business owner should establish a holding company. Instead, the conversation often becomes relevant when a business begins generating consistent surplus cash that is not required for day-to-day operations.
A holding company may be worth considering when:
- The business consistently generates more cash than it needs for operations and planned growth.
- The owner wants to invest excess corporate funds outside of the operating business.
- Significant assets are accumulating within the corporation.
- The owner is considering acquiring another business or investment.
- There are longer-term estate or succession planning objectives.
- The owner is beginning to think about a future sale or transition of the business.
This is often an important shift for business owners. The focus moves beyond simply building the operating business and toward determining how best to manage and preserve the wealth that the business has created.
Separating Business Operations From Accumulated Wealth
One of the potential advantages of a holding company is the ability to separate certain assets from the operating business. The operating company is exposed to risks associated with running a business. It enters into contracts, deals with customers and suppliers, employs staff, and may face claims or other liabilities.
When appropriate, moving excess funds or other assets out of the operating company can reduce risks that the operating entity may be exposed.
However, a holding company should not be viewed as an automatic or complete form of asset protection. The timing and manner in which assets are transferred, existing liabilities, guarantees, creditor rights, and other legal considerations can all affect the protection provided. This is why asset protection planning is most effective when it is done proactively, rather than after a liability or dispute has already arisen.
The Tax Planning Opportunities
Tax planning is another reason holding companies are commonly considered by Canadian business owners.
Generally, dividends paid between Canadian corporations that meet the relevant requirements can be received on a tax-efficient basis. This can allow after-tax corporate funds to move from an operating company to a holding company without requiring the owner to first withdraw the funds personally.
That distinction can be significant.
Instead of taking money out of the operating company personally and paying personal tax before investing it, the funds may, depending on the circumstances, remain within the corporate structure and be available for investment or other business purposes.
A holding company may therefore provide opportunities to:
- Build an investment portfolio using corporate funds.
- Acquire additional investments or business interests.
- Fund future business ventures.
- Preserve capital for future opportunities.
- Support longer-term estate and succession planning.
That does not necessarily mean that a holding company will reduce the total amount of tax ultimately paid. Corporate investment income is subject to its own tax rules, and factors such as passive investment income, the Small Business Deduction, associated corporations, and the treatment of dividends can affect the overall tax result.
The goal should therefore be effective tax planning, rather than simply creating another corporation for the sake of creating one.
Think About the Exit Before You Are Ready to Leave
Succession and exit planning are often left until a business owner is ready to sell. By that point, however, some planning opportunities may already have been lost.
Corporate structures can take time to establish and may need to be in place well before a transaction occurs.
Depending on the circumstances, a holding company may form part of broader planning related to:
- Estate planning
- Family succession
- Ownership transitions
- Corporate reorganizations
- Future business acquisitions
- A potential sale of the operating company
There may also be important tax considerations when planning for a future sale, including the potential availability of the Lifetime Capital Gains Exemption and other capital gains planning strategies.
The important point is that these opportunities should be considered before a sale is imminent. Once a transaction is already underway, the flexibility to restructure may be significantly more limited.
When a Holding Company May Not Make Sense
A holding company is not necessarily beneficial for every business owner.
If a business is reinvesting all of its available cash into hiring, equipment, inventory, expansion, or other growth initiatives, there may be little surplus capital to move into a separate corporation.
Similarly, if profitability is inconsistent or the amount of wealth being accumulated is relatively modest, the additional costs and administrative requirements may outweigh the benefits.
Those costs can include:
- Additional corporate tax filings
- Bookkeeping and accounting costs
- Legal and corporate maintenance requirements
- Additional banking and record-keeping
- Ongoing professional advice
The right question is therefore not simply, “Should I have a holding company?”
It is:
“What problem am I trying to solve, and will a holding company meaningfully help me solve it?”
What to Consider Before Setting Up a Holding Company
Before establishing a holding company, business owners should consider the broader picture.
Some important questions include:
- What am I trying to accomplish?
- How much surplus cash is consistently available?
- Do I want to invest outside my operating business?
- What risks am I trying to manage?
- Am I considering a future sale or succession plan?
- How will this structure fit into my overall tax strategy?
The answers to these questions can help determine whether a holding company is likely to provide meaningful value. It is also important to consider the structure as a whole. A holding company is most effective when it is part of a broader tax, financial, legal, and succession plan, not when it is treated as a standalone tax strategy.
The Bottom Line
A holding company can be a valuable tool for business owners seeking greater flexibility in tax planning, investments, risk management, and succession planning. However, the right timing depends on your business, financial position, and long-term goals.
The best time to consider a holding company is often before you need one, when there is still flexibility to structure things effectively.
At Givens LLP, we help business owners evaluate their corporate structures, tax planning opportunities, and financial goals as their businesses evolve. Whether you are building your first successful business or managing significant corporate wealth, thoughtful planning can help ensure your structure continues to support where you want to go next.
If you are considering a holding company or wondering whether one makes sense for your business, contact the team at Givens LLP to discuss your options.
