At first glance, setting up multiple companies within the same group may seem unnecessarily complex. However, in business practice, this is a solution frequently used to organise assets, segregate risks and structure the legal and tax management of a business more efficiently.
This type of structure is usually based on three main levels: a holding company, an operating company and a holding company or asset company. Each performs a distinct function within the group’s organisation.
The aim is not to multiply legal entities without reason, but rather to separate functions, risks and assets in a structured manner.
The logic of the structure: separating functions within the group
- Holding company
The holding company sits at the top of the structure and its main function is to hold shareholdings in other companies within the group. In Portugal, this function is often performed by an SGPS – Sociedade Gestora de Participações Sociais.
The holding company does not carry out any significant operational activity. Its function is essentially strategic, concentrating corporate control of the group, holding shares in the other companies, receiving dividends and managing investments.
By concentrating shareholdings in an autonomous entity, it becomes possible to separate corporate control from the economic activity itself.
- Operating company
The operating company is the entity where the business activity actually takes place.
It is within this company that contracts with customers and suppliers, employees, turnover and commercial operations are concentrated. Consequently, it is also here that the majority of the risk associated with the business activity is located.
From a legal perspective, this separation ensures that any liabilities arising from the business activity — such as commercial, employment or contractual disputes — are concentrated within this company, thereby reducing the direct exposure of the group’s structural assets.
Holding company or asset company
The holding company is the entity that holds the group’s relevant assets.
Among the most common assets are properties used in the business, brands, intellectual property, equipment or other assets essential to the operation of the business.
In this structure, the holding company owns these assets, whilst the operating company uses them in the course of its business, and may pay rent or other fees for their use.
This separation between ownership of assets and the operation of the business is a common practice in the asset organisation of business groups.
Main objectives of these structures
- Risk isolation
One of the main objectives of these structures is to separate the group’s corporate assets from the risks associated with its business activities.
By concentrating business activities within an operating company and holding the assets in a separate entity, the direct exposure of those assets to potential commercial or operational risks is reduced.
Although this separation does not eliminate all legal risks, it is a widely used technique for asset protection.
- Succession planning
Corporate structures are also frequently used in the context of succession planning.
Instead of directly transferring assets such as property or scattered shareholdings, ownership of shares in the holding company can be transferred. This solution simplifies the transfer of assets, keeps the assets within the corporate structure and facilitates the continuity of the group’s management.
- Strategic flexibility
Another significant advantage of these structures is the flexibility they offer in strategic decision-making.
For example, it may be possible to sell the operating company — or part of it — without disposing of the group’s core assets. If the assets are concentrated in a separate holding company, they can remain outside the scope of the sale.
This flexibility can be particularly relevant in investment contexts, when bringing in new partners, or during business sale processes.
- Tax efficiency
From a tax perspective, holding company structures may benefit from certain mechanisms provided for under the Portuguese tax system.
One of the most significant is the so-called participation exemption regime, which allows, under certain conditions, dividends distributed between group companies to be exempt from corporation tax.
In simple terms, this regime may apply where certain requirements are met, such as holding a minimum stake in the capital of the investee company and maintaining that stake for a specified period.
In certain circumstances, this regime may also apply to capital gains realised on the sale of shareholdings.
In addition to this mechanism, other relevant tax issues may arise, such as the taxation of interest between group companies, transfer pricing rules or limitations on the deductibility of financial expenses.
A structure that requires planning
It is important to emphasise that the creation of multiple companies does not automatically generate advantages.
Poorly designed structures can lead to additional administrative costs, tax inefficiencies or unnecessary legal risks. For this reason, a group’s corporate structure should be the result of a structured process of legal, tax and business planning.
When properly planned, these structures can enable a more efficient organisation of a company’s assets, facilitating risk management, succession planning and business growth.
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