How to Establish a Holding Company?

What is a holding structure and why do companies use it

A holding structure is a hierarchical arrangement where one parent company (the holding company) holds shares in one or more subsidiary companies that carry out the main operating activities. The holding (parent) company often does not conduct regular operations; its role is to:

• hold and manage shares in group companies,

• protect assets (e.g., real estate, IP, investments),

• manage group financing and cash flow,

• simplify management and set rules,

• prepare the company for an investor, sale, or succession.

For more complex groups, an essential part of the design is the setup and optimization of the ownership structure (UBO), which means clearly identifying the ultimate beneficial owner—something that banks, authorities, and business partners now monitor.

It is important to understand one thing: a holding is not a separate legal form. It is a way of organizing relationships between companies, based on the rules of the Czech Business Corporations Act and the relationship between a controlling and a controlled person. At the head is the parent (holding) company—most often a limited liability company (s.r.o.) for administrative simplicity or a joint-stock company (a.s.) for greater flexibility, owner anonymity, and higher prestige—and below it are the subsidiaries where the actual business is run.

When a holding structure makes sense even for a small company

A holding structure becomes worthwhile sooner than most entrepreneurs think. Typically, this is when at least 2–3 of the following points apply:

• you have assets you do not want to risk (real estate, machinery, IP, know-how, trademarks),

• your operations are high-risk (construction, manufacturing, liability-prone industries, contractual penalties),

• you have multiple activities and want to separate them (e.g., manufacturing vs. service vs. e-shop),

• you are dealing with expansion, acquisitions, or an investor,

• you are planning to sell part of the business or the entire company,

• in a family business, you are planning for succession and want to minimize conflicts.

The most common reason for setting up a holding structure too late is that as long as "nothing is happening," no one addresses it. Then a dispute, enforcement action, loss of a key client, or investor pressure arises—and the holding is built under stress, when some options are no longer available.

3 functional holding models for small and medium-sized companies

There is no single holding structure. The right model depends on your main objective—be it asset protection, efficient management, tax optimization, or succession. Below are three models that work well in practice, even for smaller companies.

Model 1: Pure holding for maximum asset protection

The so-called pure holding is based on a simple principle: you separate valuable assets from operational risks. In practice, it looks like this:

• the parent company holds key assets (real estate, IP, investments),

• operational activities are run in subsidiary companies, where liabilities, responsibilities, and risks arise,

• the holding company avoids risky activities and only manages shares and assets.

Advantages: robust asset protection (if "something happens" in an operating company, key assets are beyond the reach of its creditors), protection of IP and know-how (for modern IT, design, and service companies, intangible assets are often the most valuable), risk diversification (a problem in one project won't bring down the entire business), and better management of the entire group's financing.

Who it's ideal for: companies with valuable assets, high-risk industries (construction, manufacturing, liability-prone services), and family businesses that want to protect family assets. If you are also considering other asset protection tools, we have compared when to use a trust, trust fund, or holding in this article.

A typical question from entrepreneurs: "Does it make sense to create a holding for just one property?" Often, yes—that single property is frequently the "biggest target on your back" in the company.

Model 2: Operational holding for efficient management and synergies

In an operational holding, the parent company not only holds shares but also actively manages the group. It typically centralizes key functions and provides shared services—finance and controlling, HR and recruitment, marketing, IT and security, legal affairs, and compliance.

Advantages: The advantages of a holding structure mainly include economies of scale, where shared services reduce both costs and operational chaos, a unified strategy and faster decision-making, easier expansion and integration of new companies, and more efficient management of cash flows within the group. We covered this area in more detail in the article How to set up management and cash flow between companies in a group. In practice, it is also essential to correctly handle intra-group contracts, such as machinery leases, service provisions, or licensing relationships, as this is often where significant tax and legal risks arise. You can find more in the article on intra-group contracts—machinery leases, service provisions, and licenses.

Who it's ideal for: growing companies that are adding new activities or markets, groups with multiple operations that want to manage them centrally and securely, and businesses that want to reduce administration and establish order. If you feel your company is growing faster than its processes, an operational holding can often solve group management without destroying flexibility.

Model 3: Holding for tax optimization and succession planning

The third model focuses on tax advantages and preparing the company for future ownership changes (handover to family, investor entry, sale). It typically addresses the efficient payment of dividends within the group, preparation for a company sale by selling a subsidiary, setting rules for succession and family asset management, and flexibility for an investor to enter a part of the group.

For family businesses, a holding is an ideal tool for intergenerational transfer. Shares in the parent holding company can be fairly distributed among descendants, while the management of individual operating companies can be entrusted only to those family members who are interested and have the necessary skills, or to professional management. We have covered this topic in more detail in the article The family holding as a tool for intergenerational stability, where we explain how a holding can help protect family assets, maintain control over the company, and prevent disputes among successors.

An important note on tax benefits: the exemption of dividends or capital gains is always conditional and requires precise fulfillment of criteria (see below). It is crucial to set up the structure in a way that it can withstand scrutiny and is not deemed to be for an improper purpose.

How a holding is technically created: transferring companies under the holding

Establishing a holding does not start with a notary but with a strategic discussion about the goal. Once it is clear what you want to achieve, the most technically demanding step follows—getting your existing operating companies under the newly established parent company. There are two main ways to do this, each with different tax and accounting implications.

1. Sale of a share

As a natural person, you sell your share in the operating company to the newly established holding company. If more than 5 years have passed since you acquired the share (the so-called time test), the income from this sale is exempt from income tax. As the seller, you will have a receivable from the holding company for the payment of the purchase price, which the holding company can repay in the future from dividends received from the operating subsidiary.

2. Contribution of a share

Alternatively, you can contribute your share to the holding company as a non-monetary contribution—either to the registered capital or to the share premium account.

An essential part of both options is an expert valuation, which determines the real market value of the transferred shares. This is key to defending the transaction before the tax authority—undervaluation is one of the most common reasons for additional tax assessments. Which path is more advantageous for you depends on the specific situation; the difference in tax implications can amount to hundreds of thousands or even millions.

Restructuring by demerger (spin-off)

If you have multiple business activities combined in one company, the ideal solution is to separate them through a demerger process. This allows you to legally spin off individual operations (manufacturing, real estate management, IT services) from one large company into separate subsidiaries, which will then be owned by the holding company.

The entire process is governed by the Czech Act on Transformations of Business Companies and Cooperatives (Act No. 125/2008 Coll.), and its fundamental document is the demerger project. It is administratively more demanding, but it is a very clean way to achieve a functional structure without having to establish and build up individual companies from scratch.

Tax advantages of a holding and their conditions

One of the biggest financial benefits of a holding is the ability to efficiently move capital within the group. Profit shares (dividends) paid from a subsidiary to its parent company are, upon meeting statutory conditions, exempt from income tax.

The basic conditions for exemption: the parent company holds at least a 10% share in the subsidiary's registered capital continuously for at least 12 months. Under these conditions, profits from all operating companies can be accumulated in the parent company without further taxation. This capital can then be flexibly used for reinvestment in another subsidiary, for acquisitions, or as a financial reserve. The holding thus effectively transforms "profit" into "strategic capital" with significantly higher tax efficiency than if the money remained in the operating company or were paid out directly to the shareholders.

We have discussed in more detail in this article why a holding and taxes are not automatically an abuse of rights and how to defend the structure before the tax administrator.

The line of legal optimization: tax advantages must not be the main and sole purpose of the structure. If the only goal is to "save tax" in a way that contradicts the spirit of the law, the tax authority may assess the entire structure as an abuse of rights (§ 8(4) of the Czech Tax Code)—resulting in an additional tax assessment, penalties, and interest. Therefore, it is crucial to document legitimate economic reasons (risk diversification, preparation for an investor, succession) from the outset.

International holding: when and why

For companies with international ambitions, a holding structure is practically a necessity—it allows for the establishment of foreign subsidiaries, management of international financial flows, and optimization of the global tax burden. The key is to choose the right jurisdiction for the parent company's headquarters, taking into account the network of double taxation treaties.

Traditionally popular jurisdictions like the Netherlands or Luxembourg still offer a stable legal environment and advantages regarding dividends or license fees. However, it is necessary to consider that the international tax environment is becoming stricter: rules against aggressive optimization (CFC) and the automatic exchange of information (CRS) limit artificial structures without real economic substance. An international holding must therefore be not only tax-efficient but also, above all, sustainable in the long term and compliant with regulations.

A case study from ARROWS: from chaos to a solid structure

Clients often turn to us whose business has grown successfully over the years, but the structure does not match the growth. A typical example was a family business that combined three completely different activities under one joint-stock company: the production of designer bicycles, traditional button manufacturing, and a small winery. The same company also owned all the real estate and had accumulated significant retained earnings over the years.

Such a structure was a ticking time bomb—a problem in one division (say, an unsuccessful season for the winery) could jeopardize the profitable bicycle production and valuable real estate. We helped the client design and implement a holding structure: the owner first established a new holding company, into which he contributed his share, and then, through a demerger process, we divided the original company into three separate subsidiaries and one real estate company. The result was the separation of business risks, a significant reduction in the tax burden, and the protection of key assets—a clear and secure structure ready for the next several decades.

A quick checklist: when a holding most often "hurts"—when it's built only for tax reasons without a real business purpose; when contracts between companies are missing (IP, leases, financing); when the holding purports to be a holding but in practice engages in risky operations; and when it's not clear who decides and who is responsible for what.

What to watch out for: an overview of risks and how to prevent them

The work doesn't end with the establishment of a holding; it's just the beginning. An improperly set up or managed holding structure can bring more problems than benefits. One of the most underestimated risks is the protection of subsidiaries in the event of the parent company's insolvency. We have covered this topic in more detail in the article How to protect subsidiaries in the event of the parent company's insolvency], where we explain the risks associated with cash pooling, intra-group transactions, management liability, and the separation of assets of individual companies. Below we list the main risks divided into three areas—transactional, tax, and compliance—and ways to prevent them in practice.

Practical procedure: how to set up a holding safely

Regardless of which model makes sense for you, we recommend following these steps:

1. Clarify the goal: asset protection vs. group management vs. future sale or succession.

2. Map the risks: where liabilities arise, where the biggest contractual penalties and responsibilities are.

3. Separate assets and operations: what should be "safe" and what can be in the operating company.

4. Choose the transfer method: sale of a share vs. contribution, or a demerger—depending on the tax implications.

5. Set up intra-group contracts: leases, licenses, financing, management fees.

6. Address governance: who decides, how transactions are approved, how money is paid out.

7. Check the tax implications: to ensure the benefits truly apply and no unnecessary risk is created.

How ARROWS can help you with this

The ARROWS team will help you design and implement a holding structure that is legally secure (asset protection, liability, governance), functional in practice (management, cash flow, intra-group contracts), tax-defensible (meeting conditions, preventing disputes with the tax administrator), and ready for growth, an investor, or succession. Our experience from working with hundreds of business companies is your guarantee that we will set up the structure right the first time.