A group company structure is a business model in which a parent company, often referred to as a holding company, owns and controls a number of subsidiary companies.
Each subsidiary is a separate legal entity, often with its own separate management and operations teams, but they are ultimately owned and controlled by the parent company.
Below is an example of a simple group company structure:
Advantages of a group company structure
A group company structure may be a good idea for a few reasons, depending on the specific circumstances and needs of the business.
- Diversification: A group company structure can enable a business to diversify operations and move into different industries or geographic locations, utilising a new subsidiary company for each activity. This can help reduce risk to the parent company.
- Centralised control: A parent company can exercise centralised control and oversight over its subsidiaries. This can help ensure consistency in operations, branding, and other important aspects.
- Access to resources: Each subsidiary within a group company structure can benefit from shared resources and expertise, such as finance, marketing and advertising, research and development, and supply chain.
- Tax benefits: A group company structure may provide tax benefits, such as the ability to offset losses in one subsidiary against profits in another.
- Financing advantages: A group company structure can enable better access to finance. A lender might look more favourably upon a larger, more diversified business with a strong record of performance.
Despite these benefits, however, a group company structure is not always the best option.
For example, smaller businesses, or those that operate in a single specific industry, may see little benefit from a group structure.
Group company structure examples
- The Tata Group is a multinational conglomerate based in India that operates in over 100 countries. The group consists of more than 100 companies, including Tata Motors, Tata Steel, and Tata Consultancy Services. The group is owned by Tata Sons, which serves as the holding company and oversees the operations of each subsidiary.
- Unilever is a multinational consumer goods company with operations in the UK and overseas. The group is made up of a parent company called Unilever PLC, and subsidiaries like Unilever UK.
How do you set up a group company structure?
Determine the business objectives: What do you want to achieve through the structure, and is the structure the best solution?
Set up a holding company: The holding company will own or control the subsidiary companies. This may be an existing company or set up for the purpose of the group structure.
Establish subsidiary companies: These should be separate legal entities with their own operations and management
Determine the ownership structure: This will determine how much control the holding company has over the subsidiary companies.
Create a governance framework: This outlines the roles and responsibilities of the holding company and each subsidiary.
Consider tax and legal implications: Ensure that the structure is set up in a way that maximises benefits and minimises risks.
Implement and monitor the structure: This might involve regular reporting and review of the subsidiary companies' operations and financial performance, as well as making adjustments to the structure as needed to ensure that it continues to meet the business objectives.
There is a lot to manage and consider when setting up a group company structure. They can be complex and may involve multiple legal entities. For this reason, we suggest seeking professional assistance from a qualified accountant and legal expert to ensure the group structure is legally compliant and optimised for your business objectives.
Tags: Holding Company