Definition and Basics of the Holding
A holding refers to a business structure in which a company, known as the parent company or holding company, holds interests in several legally independent subsidiaries. The core of the holding concept is the control and management of other companies through corporate shareholdings. The term “holding” is derived from the English verb “to hold” (to hold, to own) and is neither expressly regulated in German law nor established as an independent company form. Rather, a holding constitutes an organizational structure that can be based on various legal forms, but especially on corporations such as the stock corporation (AG) or limited liability company (GmbH).
This structure enables corporate groups to benefit in the areas of financing, organization, taxation, and limitation of liability. Holdings are found in all sectors of the economy and are particularly used in complex group structures or in international corporate formations.
Legal Forms of a Holding
Corporate Law Fundamentals
A holding can be formed as either a partnership or a corporation. However, corporations such as GmbH or AG are particularly common, as they allow for a precise demarcation of liability and enjoy high acceptance in the business world.
Corporations as Holding
- Stock Corporation (AG): The AG holding is particularly suitable for large corporate structures where broad share distribution and a stock exchange listing are desired.
- Limited Liability Company (GmbH): The GmbH holding is widespread due to its flexible structure, lower formation requirements, and limited liability of the shareholders.
Partnerships as Holding
- Limited Partnership (KG) and other partnerships can also act as a holding, but are less common, since liability aspects and tax considerations are generally less advantageous.
Distinction Between Group and Holding
The holding is a possible organizational form of a group, but not synonymous with that term. While a group describes a number of legally independent companies under common management, the holding structure specifically focuses on the management of these companies through shareholdings.
Types of Holding
Operational Holding
In an operational holding, the parent company not only manages the shareholdings but also undertakes central operational tasks. It thus acts as both a strategic and operational management unit.
Financial Holding
The financial holding limits itself to managing the shareholdings without intervening in the business activities of the subsidiaries. The primary aim is to optimally manage cash flows and equity interests.
Management or Leadership Holding
The management holding assumes the character of a strategic group management. It decides on fundamental matters, sets strategic objectives and coordinates the general direction of the subsidiaries without engaging in operational activities itself.
Mixed or Hybrid Holding
The mixed holding combines operational business activities with the management of shareholdings. It acts both as a parent company from a management perspective and as an independently operating company.
Legal Aspects of the Holding
Legal Classification
The central legal foundations are provided by the respective regulations of the GmbH Act (GmbHG), Stock Corporation Act (AktG), and the provisions of the Commercial Code (HGB). In addition, significant importance attaches to the rules on corporate governance, accounting standards, and liability issues.
Formation and Registration
The formation of a holding is subject to the general rules of the chosen legal form (e.g., GmbHG or AktG). Registration with the commercial register as well as defining the company’s purpose with reference to its holding function are required.
Bodies of the Holding
Depending on its legal form, the holding has the corresponding governing bodies. In a GmbH, these are, for example, the management and shareholders’ meeting; in an AG, the management board, supervisory board, and general meeting.
Supervision and Communication with Subsidiaries
The parent company typically exercises influence over the subsidiaries through shareholdings, directives, and the appointment of managing directors or supervisory board members. The legal framework for this is provided by §§ 291 ff. AktG for stock corporations and comparable provisions in the GmbHG.
Regulations on Corporate Groups
Particularly relevant to holdings are the regulations concerning corporate groups. There is a clear distinction between the legal independence of subsidiaries and the economic unity of the group. Corporate group law distinguishes between
- Controlling (Contractual) Groups (§§ 291 ff. AktG)
- Integrated Groups (§§ 319 ff. AktG)
- De Facto Groups (§ 311 AktG)
The relationship between the parent and subsidiary company is legally precisely regulated, particularly with regard to liability, the right to issue instructions, profit transfer, loss absorption, and the protection of minority shareholders.
Tax Aspects of the Holding
Tax Benefits of the Holding Structure
The holding model offers significant tax advantages, particularly with regard to the so-called ‘participation exemption’ (Schachtelprivileg) and group taxation under corporation tax law.
Participation Exemption
In the context of corporations, dividends from shareholdings in other corporations are largely exempt from taxation (§ 8b KStG), thereby avoiding double taxation.
Tax Group
Through group taxation for corporation and trade tax purposes (§§ 14, 17 KStG; §§ 2 para. 2, 5 para. 1 GewStG), profits and losses can be offset across the group.
International Tax Law
International holdings often benefit from double taxation treaties, the EU Parent-Subsidiary Directive, and favorable location regulations. A foreign holding can optimize cross-border investments for tax purposes, but is subject to controlled foreign company rules and national anti-tax avoidance provisions.
Liability Issues in the Holding Structure
Principle of Limited Liability
One key motive for establishing a holding is the limitation of liability. As a rule, the parent company is not liable for the obligations of its subsidiaries. Legally, this is referred to as the separation of liability spheres.
Piercing the Corporate Veil and Exceptions
In certain cases, so-called ‘piercing the corporate veil’ liability can occur, for example in the case of
- mingling of assets,
- abuse of the legal form,
- liability for destruction of the corporate existence, or
- continued issuance of instructions to the detriment of third parties.
However, such liability is the exception: as a rule, liability is limited to the equity capital of the respective company.
Summary and Significance of the Holding under German Law
The holding is a central structuring tool of modern corporate organizations and plays an essential role in both national and international business organization. It enables efficient management, financing, and administration of corporate groups while preserving the legal independence of individual entities and clearly limiting liability. The specific structure and underlying legal form depend on strategic, tax, and liability considerations. The holding concept is subject to numerous legal regulations, particularly in corporate, tax, and group law. In business practice, the holding is a proven instrument for enabling growth, managing risks, and ensuring flexibility in international competition.
Frequently Asked Questions
What legal requirements must be observed when establishing a holding structure?
When establishing a holding structure, both corporate and tax law requirements must be observed. First, a company designated as a holding must be founded, commonly using the legal forms of a stock corporation (AG), a limited liability company (GmbH), or an entrepreneurial company (haftungsbeschränkt). The formation procedure requires notarization of the articles of association, registration with the commercial register, and registration with the relevant trade office. Minimum capital requirements must be considered (e.g. 25,000 euros for a GmbH), form requirements under the GmbHG or AktG, as well as rules regarding the appointment of bodies (managing director or management board, supervisory board in AGs). If the holding is set up as a pure financial holding, it must also comply with regulatory requirements such as the Banking Act (KWG) if it provides financial services. In the case of foreign investments, additional cross-border reporting duties and specific tax and corporate requirements of the respective jurisdictions may apply.
Who is liable for the debts of the subsidiaries in a holding structure?
As a rule, the parent company (holding) is not liable for the debts of the legally independent subsidiaries, unless a specific guarantee, comfort letter or similar contractual obligation exists. Each company within the holding structure is itself a legal entity and is normally only liable with its own assets in accordance with § 13 para. 2 GmbHG or § 1 para. 1 AktG. However, liability risks may arise if the holding company unlawfully intervenes in the subsidiaries (“intervention liability” under § 826 BGB) or in cases of liability for destruction of the corporate existence. Piercing the corporate veil may also apply in exceptional cases, e.g. in cases of commingling of assets or abuse of legal form. Personal liability of managing directors or board members may exist for legal violations (such as delay in filing for insolvency, tax evasion).
What duties do the managing directors of a holding have towards the subsidiaries?
The managing directors of the holding are subject to the general duties of care and loyalty under § 43 GmbHG or § 93 AktG. They must act in the interests of the holding and may only exercise their powers to influence subsidiaries within the framework of legal provisions. In addition, the so-called group law pursuant to §§ 291 ff. AktG applies if there is a de facto or legal control relationship (‘dependency’). In such dependencies, additional reporting obligations (dependency report, § 312 AktG) and comprehensive documentation requirements for intra-group measures apply. Even in the case of pure investment holdings without integration or control agreements, managing directors should respect the independence of the subsidiaries to avoid liability risks arising from unlawful influence.
What special notification obligations arise when there are changes within a holding structure?
If changes occur in the shareholding structure or the control of subsidiaries, numerous notification obligations come into effect. According to § 20 AktG, especially for listed companies, shareholdings exceeding 25 % must be reported and disclosed to the commercial register. In addition, § 33 WpHG (Securities Trading Act) applies, imposing notification requirements for significant shareholdings and changes in control. In a tax context, a change in the shareholder structure may result in a harmful transfer of shares (§ 8c KStG), thereby triggering the loss of tax loss carryforwards, which must be reported to the tax authority without delay. For cross-border structures, additional international reporting obligations may arise, for example under the Foreign Trade Act (AWG) and the EU Transparency Directive.
What regulations must be observed when accounting for shareholdings within a holding?
The accounting for shareholdings in the holding is based on the provisions of the German Commercial Code (HGB). Shareholdings are to be valued in accordance with § 271 HGB and recognized as fixed assets once the parent company exercises significant influence over the management of the subsidiary. If a group accounting obligation exists (§ 290 HGB), consolidated financial statements must be prepared, encompassing all assets, liabilities, provisions, expenses and income of the group. Under IFRS (International Financial Reporting Standards), there may also be a requirement for full consolidation. Additional tax provisions under the Income Tax Act and Corporation Tax Act also apply, for example in cases of hidden profit distributions or increases under § 8b KStG.
To what extent does antitrust law apply to holding structures?
Antitrust law, especially the Act Against Restraints of Competition (GWB), applies to the formation, acquisition, and merger of shareholdings by the holding. A key aspect is merger control (§§ 35 ff. GWB), according to which certain mergers must be notified to and approved by the Federal Cartel Office if turnover thresholds are exceeded. Holdings with pan-European revenues subject to the EU Merger Regulation (Regulation (EC) No. 139/2004) must notify the European Commission. Abuse control and antitrust prohibitions (e.g., prohibition of cartels, abuse of dominant positions) are also relevant if the holding uses its structure to exert anti-competitive influence. Violations can lead to substantial fines and contracts being declared void.
What tax requirements must be considered when managing profits within a holding?
From a legal perspective, profit distributions within the holding are subject to the provisions of the Corporation Tax Act (KStG) and the Income Tax Act (EStG). The so-called participation exemption (§ 8b KStG) stipulates that profit distributions made by domestic corporations to the parent company are generally 95% tax-exempt (an exception applies to banks and financial holdings in certain circumstances). A prerequisite for the tax exemption is, as a rule, a participation quota of at least 10%. In international structures, double taxation agreements and the EU Parent-Subsidiary Directive may be relevant, offering extensive relief from withholding taxes. Additional requirements include compliance with distribution restrictions, as well as accounting and documentation obligations under the HGB regarding the determination of distributable profits.
