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Get Compliant from Anywhere, Easy and Fast!

Table of Contents

  • Company Registration

Holding Companies Explained

  • Updated on 11 December, 2024
We explain how to use a Holding Company in South Africa

Holding Companies are quite popular in South Africa for various reasons. The structural advantages of a Holding Structure (most commonly known as a Holding Company) can help you manage multiple services, products, and even businesses under one umbrella. 

In this article, we take you through the breakdown of Holding Company South Africa and how they work.

What is a holding company?

Unlike directly manufacturing goods or services, a holding corporation manages and supervises the activities of its subsidiaries. These companies could be in different fields, which lets the holding firm gain from strategic development, risk lowering, and diversification.

A Holding Company is the mother ship. It holds various businesses within one corporate entity. This means it’s the perfect way to structure various services or products within one corporate group without having to keep them all within one company.

Thousands of South Africans use a holding company to set up their businesses. Take Remgro, a South African holding firm started by Johann Rupert. Remgro enjoys interests in consumer goods (Distell), banking (FirstRand), and healthcare (Mediclinic). Remgro guarantees stability and long-term profitability by varying its portfolio, therefore reducing the danger of underperformance in any one sector.

Holding Company in South Africa being discussed by the team

Why choose a Holding Company?

A Holding Company is perfect for entrepreneurs looking to branch out to new business prospects; prospects that don’t quite fit into their existing companies. It’s also great for business owners who want to compartmentalise different departments, services, or products.

Actually, anyone looking to limit the financial risk of having various trades within one company can opt for a holding company to keep risk factors limited to specific divisions.

A Holding Company also makes it less risky to team up with business partners in new ventures; you won’t have to expose your existing company to the risk of failure your new business poses.

Reasons South African Businesspeople Should Think About a Holding Company

One practical example is diversifying income sources:

Say you run a successful online retailer. Creating a holding company allows you to extend out into complimentary industries like digital marketing or logistics without endangering your main business. Every business runs as a subsidiary, providing financial security and means of attracting investment.

Real-world Example: Intergenerational Wealth Creation

A holding company form guarantees more seamless generational changes for family-owned companies. For example, Remgro, the investment holding firm owned by the Rupert family, has helped them to preserve and expand their fortune across several sectors.

How does a Holding Company work?

In essence a Holding Company is a parent company, which owns various businesses (or at least 30% of their issued shares). A Holding Company doesn’t trade in services or products itself, it merely has ownership in various companies that do, holding them together in one corporate entity.

Interestingly, Investment Companies use this holding structure to attain shares of various promising or profitable businesses within one Investment Company. However, it’s perfect for the everyday entrepreneur too.

How might a South African holding company be registered?

Pick a company name

The name of your holding company must follow rules set by the Companies and Intellectual Property Commission (CIPC).

Write a Memorandum of Incorporation (MOI)

The MOI clarifies the company's goal and its interaction with subsidiaries.

Register the Business

Send your papers to the CIPC for official registration.

Registration for Taxes

You will have to apply for a tax number and VAT registration once registered, if relevant.

An important note relating to Holding Company South Africa which you need to take into account is its shareholding and the directorship, especially with the latest Beneficial Ownership Requirements. You want to make sure that all the shareholders of the Holding Company (if any) share the same vision and the Directors can execute it.

Find out more on registering a South African holding company.

What is an example of a Holding Company?

Let say, David has a booming home painting company in Randburg called NuHome Painting. His nephew, George, has worked at renovations businesses before, building custom cupboards, in the same area.

David would like to branch out business to home renovations in Pretoria, starting a venture with his skilled nephew. However, he doesn’t want to put his current company at risk, if the family venture goes sour.

David registers a Holding Company called NuHome Holdings to facilitate this expansion.

Holding company in South Africa example of structure

NuHome Holdings acts as a parent company to both his established painting business and his newly registered Renovation Company (which he shares with his nephew). David’s Home Holdings owns 100% of the shares of his established business and 50% of his shared business.

This way these two businesses operate completely independent to one another within one larger entity owned by David, plus David and George have the opportunity to generate a new company name, NuHome Renovations, tailored to their new service, rather than automatically using David’s existing business to trade.

This allows NuHome Renovations a better chance at winning Contracts and Tenders relating to renovation jobs. The same goes for NuHome Painting regarding painting work.

Additionally, David can venture into brand new industries at any time, like selling beverages for instance, simply by registering a new company owned by his Holdings Company.

Important Benefits of Holding Businesses

Risk control and asset protection

A holding company offers a framework that distributes the risks connected to distinct subsidiaries. Given the economic unpredictability and sector-specific issues of South Africa, this is especially crucial there.

For instance, think of Bidvest Group, which runs food, banking, and goods as well as other businesses. Bidvest can protect its assets from any one subsidiary by separating these companies into different legal entities. For example, should its goods segment face financial difficulties, the other divisions remain unaffected, therefore maintaining the group’s general resilience.

Tax Optimisation

One more major benefit of owning firms in South Africa is tax structure. Usually free from dividend withholding tax if the holding company has a sufficient portion of the subsidiary, dividends paid by subsidiaries to a holding company are also exempt. Moreover, losses suffered by one company can occasionally balance the earnings of another inside the same group, therefore lowering the total tax load.

For instance, the parent company of the biggest food retailer in Africa, Shoprite Holdings, gains from its holding company structure in terms of managing subsidiaries such Checkers, Usave, and Shoprite stores. While every company runs separately, Shoprite Holdings uses strategic income and spending allocation to maximise its tax obligations.

Improved Funding and Investing Prospectives

Many times, South African holding firms draw investment with their structures. Investors have less risk exposed by a holding company with a broad portfolio since poor performance in one subsidiary can be offset by great performance in others.

For instance, media (Media24), fintech (PayU), and e-commerce (Takealot) investments are included in the holding company structure of Naspers, a worldwide consumer internet firm with South African roots. This diversity not only draws in money but also offers chances to deliberately allocate assets among its companies.

Simplified Strategic Administration

By centralising decision-making, holding firms help to improve resource allocation, consistent strategies, and economies of scale. In South Africa, where companies sometimes must maximise few resources to be competitive, this is very helpful.

For instance, Sasol Limited runs several subsidiaries targeted on upstream, midstream, and downstream activities while essentially an energy and chemical firm. The way Sasol’s holding company is set lets it monitor its worldwide activities and make sure every subsidiary fits the group’s larger strategic objective.

Encouraging Development and Acquisitions

Holding companies find great utility in South Africa as vehicles for mergers and acquisitions (M&A). New subsidiary acquisition allows a holding company to diversify its activities and increase its market share.

For instance, the South African holding firm The AVI Group owns several well-known brands including I&J fish, Five Roses Tea, and Bakers Biscuits. By means of acquisitions, AVI has expanded its presence in the FMCG industry, leveraging its holding company structure to efficiently incorporate fresh companies.

Holding company South Africa is a great corporate tool for business

What are the disadvantages?

The paperwork and start-up costs and will be slightly higher. You will have to register every business you’d like to run as a Subsidiary Company to your Holding Company.

Also, if the Subsidiary Companies to your Holding Company have various owners, it can be difficult to close a Holding Company, as there are multiple owners to consult.

However, if this business structure might help you better manage various parts of your business or numerous companies, the long-term benefits are worth considering. Here’s a more detailed summary of some of the challenges:

Complexity in Regulation

Working in South Africa means negotiating complicated tax rules, exchange restrictions, and reporting obligations. Ignorance of non-compliance might lead to fines and a bad reputation.

It would be recommended that you have a corporate lawyer on speed dial to navigate the complexities to make sure you don’t get on the wrong side of the law.

Economic Variability

The political uncertainty and changing exchange rates of South Africa’s economic climate can affect holding businesses both locally and abroad.

Maintenance and Establishing Costs

Establishing a holding corporation calls for both large administrative and financial resources. Companies have to make sure the long-run benefits exceed the expenses.

It is highly recommended that your financial team is well versed with holding companies and the applicable financial structures, regulations, and laws to ensure you don’t end up having a tax bill with SARS.

Conclusion

For South African enterprises trying to maximise their structures, safeguard assets, and stimulate development, holding corporations are essential instruments. By means of tax efficiency, risk management, or strategic acquisitions, holding corporations offer a flexible structure that supports long-term performance.

From family-owned businesses to giants like Naspers and Bidvest, holding companies are showing to be essential enablers in the economic scene of South Africa. Businesses can set themselves up for resilience and success in a competitive market by knowing the local regulatory environment and using the advantages of this structure.

Register your Holding Company with Company Partners, speak to a specialist for free.

Contact us today!

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