The Holding Company in Germany

A holding company is not a typical legal form such as a civil law partnership (GbR) but rather an organisational form or structure for companies. What is meant here is a structure that consists of at least two companies: a superior company ( called the parent company) and at least one subordinate company ( called the subsidiary company). The parent company holds shares in the subordinate subsidiaries and assumes the function of the holding company.

A holding company is, therefore, a company (parent company) that holds shares in at least one subordinate and dependent company, which in turn conducts the actual business.

In total, there are five different types/forms of holding companies::

The financial or asset holding is purely administrative. There is no strategic or operational intervention in this form of holding. Instead, this variant of a holding company functions as an internal bank and serves to optimise the flow of financial resources in the holding company. Here, the subsidiaries are strategically independent and take over the operational business.

In this holding company, the parent company primarily assumes strategic monitoring and controlling functions of the subsidiaries. These processes occur insofar as the parent company, for example, supervises the management positions of the subsidiaries or the filling of these positions and often acts as the sole decision-making authority. Despite the parent company’s superior function, the subsidiaries can operate independently.

Here the parent company takes over managerial activities and is usually superior to the subordinate companies in financial, personnel and spatial terms so that the latter is dependent on the parent company in this respect. In the case of the operational holding, the subsidiary primarily acts in a supporting role. At the same time, the parent company is active in the market and, among other things, defines external appearances for the subordinate companies. This type of holding represents the traditional form of large companies.

The organisational or structural holding serves to organise a company internally or to divide it into different divisions. This form of holding is often used when a new risky business area is planned. Such a holding company can then be spun off into a subordinate subsidiary group so that the other companies remain unaffected if this division fails.

This variant of a holding company is characterised by the fact that the parent company and any associated subsidiaries present themselves to the outside world as a strategically united group. It is similar to the management holding mentioned above.

When establishing a holding company, a distinction must also be made between the different variants. It is possible to establish a holding company if

• at least two already existing companies form a holding company,
• an existing company and a newly established company merge, or
• two new companies are founded, one of which forms the parent company and the other the subsidiary.

In the latter variant for forming a holding company, the parent company is usually formed first and only then the subsidiaries.

In principle, the foundation of a holding company requires the existence or foundation of at least two companies. The following legal forms can be considered for the companies:

• Public limited company (AG),
• Limited liability company (GmbH),
• Entrepreneurial company (UG),
• Mixed forms.

A notary appointment must take place to record the merger of the companies into a holding company and thus establish the holding company. Once all the companies have been founded, the holding company is registered as a shareholder of the subsidiaries. In this process, the subsidiaries’ shares- between 10 and 100 per cent – are transferred to the holding company.

The lawyers of the law firm Schlun & Elseven will be happy to answer all your legal questions. They will explain to you the various legal forms – which come into consideration when setting up a company – and check which is best suited to your project.

In addition, we will be happy to assist you with the necessary registration of the name of the holding company with the Trademark and Patent Office. Our article “Company Formation in Germany” contains further information.

The costs of setting up a holding company in Germany depend on the legal form chosen to establish a new company and, consequently, on the start-up capital required. If the companies already exist, the holding company’s formation is much less expensive.

The minimum start-up capital required for the formation of the above-mentioned legal forms is €50,000 for forming a public limited company and €25,000 for establishing a private limited company. A minimum capital of one euro is sufficient to start a UG, although founders should consider that annual costs of approximately €800 are incurred for this legal form.

Other costs that may be incurred when founding a holding company include:

• Expenses for registering a business,
• Costs for registration in the commercial register,
• Contribution to the Chamber of Industry and Commerce,
• Notary fees.

Careful preparation and planning on your part should take place before the foundation of a holding company. This is particularly necessary if the establishment of the holding company also implies the establishment of one or more companies.

The following steps are necessary to set up a holding company:

• Draw up a business plan: You should first draw up a business plan and check which form of holding company is most suitable for you and your project. When drawing up the business plan, also take into account possible risks and make a decision regarding the question of which corporate forms the parent and subsidiary companies should have.
• Financing: Another aspect you should include in your considerations regarding establishing a holding company is the financial situation. It is essential that you check whether the funding of your project is secured.
• Marketing: You should also have prepared a marketing concept for the various companies in advance.