If business owners are already struggling with understanding their business financial literacy says Edmonton bookkeeping, they may not understand why it is beneficial to set up a holding company to own their business. Therefore, it is very important that business owners understand the benefits to use holding companies in addition to what the requirements are as well. This way, a business owner can make the decision that is right for them, and their business.
The first thing that a business owner should know is what a holding company actually is. This refers to a corporation that is set up for the sole purpose of owning another corporation. The holding company has a stake in the operating company and it gives a business owner a certain layer of protection. A holding company is very beneficial if a business owner is planning on owning more than one business with that they buy it or build it. Or if a business owner is planning on purchasing assets like real estate or stocks. The sole way that a holding company makes money is either through buying and selling assets or by charging the operating company management services.
The reason why many entrepreneurs choose not to set up their corporate structure this way says Edmonton bookkeeping is because they can add to the requirements that a business owner must use to do their finances. Since the holding company and the operating company are their own separate and legal entities, they need to file two separate year ends. This added expense and additional work often cause business owners to choose not to pursue this corporate structure however, the benefits can often outweigh these issues.
One of the benefits that a business owner can get from utilizing a holding company is gaining a layer of protection that is afforded when they do not directly own the corporation that is operating the company. Even though a corporation is set up to limit an entrepreneur’s liability, by using a holding company, they further limit that liability and protect themselves.
In addition to limiting their liability, minimizing taxes is one of the things that I when entrepreneurs accountant will be able to significantly help with. There are many things that can be done to minimize taxes being paid by transferring money from one corporation to the other and using those corporations to delay paying a business owner or help them overcome in overdrawn shareholders loan account. With two corporations, there are a lot more options of how to move money around, which can help a business owner minimize the taxes that they have to pay.
By understanding the benefits that come with utilizing a holding company as well as and operating company is Edmonton bookkeeping can help a business owner make the decision that is actually right for them, and not avoid the decision because they do not want to pay for to year ends. Often the taxes that they save, and the way that they can profit from this corporate structure often makes up for the expense of doing the year ends for two corporations.
Edmonton Bookkeeping | Benefits Of Using Holding Companies
If an entrepreneur has discussed with their accountant and Edmonton bookkeeping company the benefits of utilizing a holding company, they may choose to set their corporation up this way. However, it is very important that business owners are aware of all of the errors that can be made financially when they have this type of corporate structure. By understanding these challenges, they can be prepared from the beginning of their business to avoid these errors and ensure the accuracy of their financial statements.
Mistakes often happen during intercompany transactions says Edmonton bookkeeping. Therefore, in order to avoid making errors in this way, is owners first need to understand what an intercompany transaction is. Intercompany transactions are transactions that happen between holding and operating company or any related companies says Edmonton bookkeeping. What is considered a related company, is when a business owner or their spouse owns at least 25% of another corporation. Another way that there could be a related company, is if a business owner or their spouse owns part of another corporation, and the person that owns part of that same corporation opens another corporation, those become related companies as well.
Examples of intercompany transactions that happen is if a business owner transfers money from their operating company to their holding company in order to pay a management fee, that is one intercompany transaction. Edmonton bookkeeping says that all transactions need to be detailed very closely and then communicated to their bookkeeper so that they can enter the information into the financial statements properly, and for the correct corporation. If the transaction is entered into the wrong corporation, both financial statements will end up being incorrect. If it is also misclassified, that also creates problems.
It is very important for an entrepreneur to end up with accurate financial statements regularly so that they can make the most informed financial decisions possible. Therefore, ensuring they communicate with their Edmonton bookkeeping company not only what transactions belong to what corporation, but where they get classified as well. Therefore, an entrepreneur needs to be very organized, and communicate very clearly with their bookkeeper. As long as they do this, they can ensure they are getting accurate financials.
Their Edmonton bookkeeping company should ensure that they are matching all transactions for all companies every single month. Doing this monthly that only ensures that a business owner ends up with the financial statements they need to make decisions in their business, that when it gets time to do their corporate year ends, they have the most accurate information to do it with, and it will take them as time and less money to get done accurately.
Once not nor has decided to utilize the holding company corporate structure for their business, Edmonton bookkeeping says they just need to ensure that they are developing a system for keeping track of all their financial transactions to avoid making errors that could end up being very costly, or and in financial statements that are inaccurate. By doing this, a business owner can ensure that they are operating both corporations accurately and to their benefit.