Investing your funds is a wise way to secure a healthy financial future and potentially generate a return on your capital.
In the search for the best investment opportunities, many investors come across the concept of investing through holding companies. A holding company can be a powerful tool for organizing and managing your investments, while offering you a number of advantages over traditional investment methods.
Whether you're an experienced investor looking for new additions to your portfolio or a beginner looking to understand more about holding companies, this blog post is for you.
Please note that it is always important to seek professional advice when making investment decisions, including investing through holding companies.
A holding company is not a specific type of company, like ApS and A/S for example. However, a holding company is always either ApS or A/S.
Instead, the important thing about the concept of a holding company is the overall purpose of the company.
A holding company is a corporate structure designed to own and manage shares or interests in other companies. It acts as an overarching company - often called the parent company - that owns or controls operating companies - often called subsidiaries.
Where an operating company conducts actual business, a holding company will be used solely to organize and manage investments.
One of the main reasons why people choose to set up holding companies is that holding companies are taxed at the corporate income tax rate, which in 2023 is 22%. This is a significantly lower tax rate than the standard tax rate for share income, which is 27% on the first DKK 58,900 and 42% for the part of your share income that exceeds DKK 58,900.
Another important reason why people choose to set up a holding company is that the holding company is a separate legal entity. By acting as a separate legal entity, the holding company can help limit personal liability for any financial obligations or losses that may arise in the subsidiaries.
Investing through holding companies offers a number of benefits that can appeal to both private investors and businesses. Some of the benefits include:
Byconsolidating your investments in a holding company, you get centralized management and monitoring of your investments. This makes it easier to track portfolio performance, make adjustments and make decisions based on an overall strategy.
One ofthe significant benefits of holding companies is that they can help protect your personal wealth. By separating the legal liability of the holding company from the subsidiaries, you can limit your personal liability for any financial obligations or losses that arise in the subsidiaries. This creates a legal barrier between your personal assets and the holding company's investments.
Holding companiescan also benefit from tax incentives and advantages. As mentioned earlier, investments via holding companies are taxed under the corporate tax rate (22%), which is significantly more favorable than the rules in the Personal Income Tax Act (27%/42%). These tax benefits can increase the overall return on your investments and improve your long-term financial position.
A holding company opens up a wide range of investment opportunities and you can use the holding company to invest in many different types of assets.
Examples of investment opportunities:
A holding company can, among other things, invest in listed shares in the same way as ordinary private individuals can.
Holding companiescan also be used to invest in real estate as a form of real estate investment. This can include the purchase of residential properties, commercial properties, or even development projects. Real estate investments can provide stable income streams and long-term increases in value.
Aholding company can invest in startups and new businesses as a form of venture capital. This involves providing funding to entrepreneurs in exchange for ownership stakes in their companies. Venture capital investments can be high-risk, but they can also provide significant returns if a business succeeds.
Read also about seed capital.
Holding companiescan also invest in established companies as a form of private equity. This typically involves acquiring ownership stakes in private companies and contributing to their growth and development. Private equity investments can offer potentially attractive returns and influence on company decision-making processes.
Witha holding company, you can also choose to lend your assets in exchange for interest - just like the bank does. With crowdlending, you are the bank and the interest accrues to you. In this way, crowdlending is an interesting and exciting addition to your investment portfolio, ensuring high interest rates and short maturities.
Please note that this list is not exhaustive and there may be many different investment options for holding companies that are not described here.
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Historical returns are no guarantee of future returns. The money you lend to projects can therefore increase or decrease in value and there is no guarantee that you will get back the full amount lent.
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