Introduction

A holding company is a parent entity that owns more than 50% of the shares in another company, known as a subsidiary, with the primary purpose of controlling assets and managing the subsidiary’s affairs. Unlike typical business entities, a holding company does not engage in business operations or conduct any activities itself. Instead, it is designed to acquire equity in other companies, distinguishing equity ownership from merely purchasing stock. Equity ownership refers to holding a significant stake in a company, even if the company does not issue stock.

In Nigeria, businesses often establish holding companies to maintain control over their subsidiaries, often to navigate unfavorable tax structures. However, using the term “Holding” or “Group” when registering a company is prohibited without obtaining the requisite consent from the Registrar General of the Corporate Affairs Commission (CAC).

Key Reasons for Setting Up a Holding Company

1. Tax Optimization: By strategically locating specific business operations in countries with more favorable tax environments, holding companies can minimize overall tax obligations and increase tax efficiency.
2. Liability Protection: Holding companies provide a layer of protection from legal or financial liability if a subsidiary goes bankrupt, safeguarding the parent company’s assets.
3. Asset Control and Tax Benefits: Holding companies are used to protect assets, gain tax benefits, and exert control or influence over other companies, allowing for strategic business management.

Requirements for Setting Up a Holding Company

To establish a holding company in Nigeria, the following requirements must be met:

• At least two subsidiary companies must exist.
• A statement from the majority of the directors of the holding company affirming that it will acquire more than 50% of the nominal share capital of each subsidiary within 90 days of incorporation.
• Compliance with Section 733 of the Companies and Allied Matters Act (CAMA) 2020.

Procedure for Setting Up a Holding Company

The process of setting up a holding company in Nigeria mirrors that of registering any new company, with the additional step of seeking consent from the Registrar General of the CAC for the use of the term “Holding.” The steps include:

1. Submitting a formal application for consent to use the word “Holding” in the company’s name.
2. Providing evidence of at least two subsidiary companies, limited to only limited liability companies.
3. Including a statement from the majority of the proposed holding company’s directors that it will acquire more than half of the nominal value of the share capital of each subsidiary within 90 days of incorporation.
4. Submitting evidence of updated annual returns for the existing subsidiary companies.
5. Demonstrating compliance with Section 733 of CAMA, where applicable.
6. Once consent is obtained, the applicant can proceed with the registration of the holding company.

Procedure for Setting Up a Group of Companies

A Group of Companies is a business structure involving three or more associated companies with common shareholders or ownership, as defined by CAMA 2020. The steps for setting up a Group Company in Nigeria include:

1. Submitting a formal application for consent to use the word “Group” to the Registrar General of the CAC.
2. Providing evidence of a minimum of three associated companies that will form the Group, with the Group Company acting as a distinct entity.
3. Ensuring similar names among the associate companies with common shareholders and ownership.
4. Obtaining a resolution from the associate companies indicating their consent to the “Group” relationship.
5. Providing updated annual returns for all associate companies.
6. Submitting evidence of the company secretary for the associate companies.
7. Including a statement from the proposed Group Company that its share capital will not be less than the highest share capital among the associate companies.
8. Demonstrating compliance with Section 733 of CAMA, particularly for banks, insurance companies, deposit provident companies, and benefit societies.
9. Once consent is obtained, the applicant can proceed with registering the Group of Companies using the same procedure as for a new company.

Conclusion

While setting up holding companies offers several advantages, such as tax benefits and liability protection, it also introduces a level of complexity absent in single-entity structures. This complexity requires careful consideration before incorporation. It is important to note that only limited liability companies can form holding or group companies; business names, limited partnerships, and limited liability partnerships are excluded from this provision.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.