Holding and operating company: separating risks

As a business grows, keeping everything inside a single company becomes awkward and risky. The accumulated assets, the real estate, the intellectual property and the liquidity remain exposed to the same risks as day-to-day operations: a dispute, an insolvent supplier, a project gone wrong. The two-tier structure — a holding that holds the participations and one or more operating companies that do the business — was created precisely to separate what generates risk from what needs to be protected. Let us see how it works in Switzerland and when it really makes sense.

What the holding does and what the operating company does

The logic is simple:

• The operating company carries out the commercial activity: it sells, produces, hires staff, signs contracts. This is where the business risk is concentrated.
• The holding does no direct business: it holds the quotas of the operating company, collects the dividends, accumulates reserves and can own the strategic assets (real estate, trademarks, patents).

If the operating company runs into trouble, the values “parked” in the holding remain outside its sphere of risk. Liability is in any case limited to the capital of each company — we are not circumventing anything, we are better organising where each thing lives.

Why separate the risks

The main advantages of this architecture are three:

• Asset protection: the profits distributed to the holding are no longer exposed to the operating company’s creditors. Real estate and intellectual property too, if placed outside the operating company, do not end up in a bankruptcy estate.
• Flexibility in disposal: selling a business unit is cleaner if each activity sits in a dedicated company under the holding. You transfer the participation, you do not dismantle a single container.
• Dividend governance: the holding can accumulate profits and reinvest or distribute them to the shareholders at the right time, without keeping excess liquidity exposed in the operating company.

The tax treatment in Switzerland

On the tax side, the central point is participation relief: when the holding collects dividends from a company in which it holds a qualified stake, the profit tax at the holding level is reduced in proportion, so as to avoid the same profit being taxed several times along the corporate chain. Many cantons also provide favourable capital regimes for companies with a pure holding character.

It must be said clearly: the exact conditions (participation thresholds, holding period, calculation of the relief) depend on the specific situation and on the canton. The practical rule is that a well-structured holding avoids economic double taxation on dividends internal to the group, but the precise figures must be calculated case by case.

Dividends and distribution to shareholders

An often underestimated aspect concerns the 35% withholding tax that applies to distributed dividends. When the operating company distributes to the holding, and the holding then to shareholders who are natural persons, the flows and the recovery or notification procedures must be planned, otherwise liquidity is tied up. Distribution to shareholders resident in Switzerland follows different rules from foreign shareholders, where the double taxation agreements come into play.

When the holding makes sense (and when not)

The two-tier structure is not for everyone. It is worth considering when:

• the activity generates stable profits that you want to accumulate or reinvest;
• there are multiple business lines or you plan to open more;
• there are assets to protect (real estate, trademarks, patents, a portfolio of participations);
• you are preparing an entry of investors or a future disposal.

It is not worthwhile, on the other hand, when the activity is still small, with modest profits: the management costs of two companies — double accounting, double closings, double audit obligations beyond the legal thresholds — can exceed the benefits. The holding is a growth structure, not a fad to be used too early.

The mistakes to avoid

• Setting up the holding without real substance: a purely façade holding, with no economic logic, is fragile on the tax side.
• Moving assets after the risk has already materialised: late transfers can be contested.
• Forgetting the transfer prices between holding and operating company: intra-group services and financing must respect market conditions.
• Underestimating the audit and accounting obligations that are triggered at group and individual company level.

In summary

Separating holding and operating company means putting a wall between what is at risk and what has value. Well designed, the structure protects the assets, optimises dividends thanks to participation relief and makes the company more sellable. But it must be built at the right moment, with real economic substance and coherent tax planning.

Are you assessing whether a holding structure is the right step for your growth? SIH ONE’s corporate division designs the corporate architecture and handles its incorporation end-to-end.