Welcome back! In an adjacent blog post, we explored the concept of a holding company and its potential role within your business structure and leasing strategies. Check out part one here!
Now, let's delve deeper and discover the advantages a holding company offers when leasing heavy equipment through our trusted network. Remember—from strategizing how the new equipment will fit into your business to working through the nitty-gritty of your cash flow, we’re in your corner.
Want to Protect Your Assets? Start a Holding Company
One of the primary benefits of using a holding company for equipment leasing lies in asset protection. By separating your production assets (the leased equipment) from the operational risks of your core business, you create some much-needed breathing room.
In short, the security benefit of holding companies is great to have for when you actually need it - not after. Think of it as a protective shield safeguarding your long-term investments in production, office, and manufacturing equipment. Potential liabilities arising from daily operations (infractions are only going up, by the way) won't directly impact your valuable equipment holdings.
Just because you’ve found operational trouble (I mean, we hope you don’t) doesn’t mean your equipment has to.
Enhanced Flexibility When Transitioning Ownership
By consolidating your leased equipment within a separate entity, you can minimize the administrative complexities related to future business decisions. Put another way, two smaller companies are easier to direct than one big, interconnected one.
Whether considering expansion, divestment of certain assets, or attracting new investors, this clear-cut organizational structure simplifies any strategic maneuvers. You get bigger, but your operational side gets smaller—see? It’s a neat trick!
Tax Advantages of a Holding Company
As any bookkeeper will tell you, there's a handful of potential tax advantages when using a holding company with multiple, arms-length parties involved—especially if you currently distribute income as dividends (which are often subject to higher personal tax rates).
As always, it's crucial to consult with a qualified tax professional to understand the specific regulations in your industry. Together, they’ll walk you through factors and contingencies. For instance, a holding company that owns at least 10% of the operating company's shares (OpCo) and applying specific tests will change the game. On the other hand, earnings within the holding company (HoldCo) can be reinvested in other business entities.
Another tax benefit you could reap is to use depreciation on equipment against the income generated by “renting” it to your OpCo. This could reduce your taxable earnings in the HoldCo, permitting the retention of more earnings in the business. And with that… better cash flow!
Recap: The Pros of Leasing Through a Holding Company
The decision to use a holding company involves several factors, and it's crucial to consult with a qualified accountant and lawyer to assess its suitability for your specific situation. Here are your major points to remember as you and your team tackle the decision:
- Business Size and Complexity: Large companies with significant assets or complex operations often use holding companies. For smaller businesses, the additional cost and complexity of maintaining a holding company might outweigh the benefits.
- Tax Implications: While holding companies can offer tax advantages, it's essential to understand the potential tax implications in your area. Consult a tax professional to ensure you're maximizing your benefits.
Legal and Regulatory Requirements: Setting up and maintaining a holding company can involve significant legal and regulatory hurdles. Research the requirements in your region and be prepared for potential legal fees as your budget.
Partnering for Success: Your Trusted Lending Partner
At Prime Capital, we're committed to arming you with the equipment that fuels your success. Whether you're considering a holding company structure or simply seeking the right leasing solution for your heavy equipment needs, our team of experts is eager to guide you.
Contact us today to discuss your specific requirements and explore how we can help you leverage the power of leasing to achieve your goals, sail through expansions, and grow your business with confidence.
