Entrepreneurship & Small Business

Corporation: Switching from operating to holding company

  • Last Updated:
  • Nov 8th, 2019 1:14 pm
Newbie
Oct 18, 2014
6 posts
Toronto, ON

Corporation: Switching from operating to holding company

Hi everyone,

After being unsure/unclear from my meeting with accountant, I wanted to ask this forum to double check:

A. Can I switch my existing corporation (operating company aka "opco 1") to a holding company in the next few months? I would not renew any service contracts and the existing assets (mostly software) will be leased to the new operating company (opco 2) that will have opco 1 as the owner?

B. I plan to have opco 2:
  1. to list all the app in the app store
  2. pay the two contractors (currently paid by opco 1)
  3. transfer any remaining profits to opco 1 (now a holding company) as dividends

My accountant didn't sound as convincing and I think it could be the software/app store angle (although these should just be treated as any regular asset). I am open to any recommendations for accountants as well. I also think I should reach out to a lawyer to talk about how to lease the assets in opco 1 to opco 2. Thanks in advance.
7 replies
Deal Fanatic
Aug 21, 2007
6054 posts
853 upvotes
Markham
sounds doable to me, but what is the advantage in your mind of separating out the asset and licensing to opco?

perhaps its terminology - holdco is for when it owns the shares in opco...'sister' companies may be lingo your accountant would better understand for your scenario
Newbie
Oct 18, 2014
6 posts
Toronto, ON
Thanks adeel. The accountant recommended to separating the asset and licensing to the opco to protect the assets in case of any future risks. I'll use the "sister" lingo when I see the accountant. Just want to make sure I can change the existing opco to holdco while also doing this licensing to opco correctly.
Deal Fanatic
Aug 21, 2007
6054 posts
853 upvotes
Markham
Compasseverest wrote: Thanks adeel. The accountant recommended to separating the asset and licensing to the opco to protect the assets in case of any future risks. I'll use the "sister" lingo when I see the accountant. Just want to make sure I can change the existing opco to holdco while also doing this licensing to opco correctly.
yes its possible and happens frequently
Deal Fanatic
Sep 23, 2007
5654 posts
2168 upvotes
My experience with accountants suggesting holding company is...they have a vested interest to suggest these solutions because it creates more work for them to charge you with. Yes the benefits can be real, but so are the recurring professional fees for such knowledge and service. You should weigh whether your business has enough income to make this worthwhile and necessary. CRA under the liberal government has been increasingly cracking down on perceived tax savings strategies, targeting companies with passive income. Double check and try to quantify whether you actually save any money from this. Having an extra corporation certainly will entail more work to some degree.

With that said, I don't see any issues with what you are trying to do. Just keep in mind what are your actual chances of facing litigation or so called "risks" such that this kind of separation of assets would matter. Look at the whole business stream and think about whether this makes any practical difference. We are in the small business forum after all.
Deal Expert
User avatar
Aug 2, 2010
15196 posts
5016 upvotes
Here 'n There
There is no such thing as 'switching' a corporation. It always stays the same. You may want to incorporate another company, change what the existing company does, etc, but that's all you are doing. The legal structure of the corp stays the same.
Newbie
Oct 18, 2014
6 posts
Toronto, ON
BananaHunter wrote: My experience with accountants suggesting holding company is...they have a vested interest to suggest these solutions because it creates more work for them to charge you with. Yes the benefits can be real, but so are the recurring professional fees for such knowledge and service. You should weigh whether your business has enough income to make this worthwhile and necessary. CRA under the liberal government has been increasingly cracking down on perceived tax savings strategies, targeting companies with passive income. Double check and try to quantify whether you actually save any money from this. Having an extra corporation certainly will entail more work to some degree.
Agreed on the more work = more revenue for the accountant. That's one of the reason I have been more hesitant. I spoke to a tech lawyer (free consultation) and she mentioned it's only for big firms to have their tech patents to be kept in a holdco and said it seems like an overkill to have it for a bunch of apps and software.
With that said, I don't see any issues with what you are trying to do. Just keep in mind what are your actual chances of facing litigation or so called "risks" such that this kind of separation of assets would matter. Look at the whole business stream and think about whether this makes any practical difference. We are in the small business forum after all.
Yeah, these apps are mostly meditation and wellness apps. So definitely bang on money about what "risks" there actually is. I think I'll stick with one corporation, create a separate USD business account to handle the app store revenue and move on from there. The minor issues around USD conversion for tax filing should be easy to handle.
Newbie
Oct 18, 2014
6 posts
Toronto, ON
eonibm wrote: There is no such thing as 'switching' a corporation. It always stays the same. You may want to incorporate another company, change what the existing company does, etc, but that's all you are doing. The legal structure of the corp stays the same.
Got it, thanks! Basically, create some paper trail for any changes in terms of ownership but the legal structure of the corp doesn't change.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)