How to Open a Holding Company in Canada: A Comprehensive Guide

A holding company can be an important part of the corporate structure of a growing Canadian business.

Business owners commonly consider holding companies when their operating corporation has accumulated excess cash, when they want to hold investments outside the operating business, when they are planning for future growth or succession, or when their accountant recommends a corporate reorganization.

I’m Raz Toor, the founder of Falcon Law PC. We assist Canadian business owners with incorporations, holding-company structures, share transfers, section 85 rollovers, corporate reorganizations, shareholder agreements and other ownership changes.

One of the first things I explain to clients is that there is an important difference between incorporating a holding company and putting a holding-company structure in place.

You can incorporate a new company in a matter of days. But if you already own an operating company personally, incorporating another corporation does not automatically make that new corporation the owner of your existing business.

The ownership of the operating company must actually be reorganized.

What Is a Holding Company?

A holding company, often called a HoldCo, is simply a corporation whose principal function is to own assets rather than conduct the day-to-day operations of a business.

There is no special legal category of corporation called a “holding company” that you select when incorporating.

A holding company may be incorporated under:

• the Canada Business Corporations Act;
• Ontario’s Business Corporations Act; or
• another applicable provincial corporate statute.

What makes it a holding company is primarily what it owns and how it is used.

What Can a Holding Company Own?

Depending on the structure, a HoldCo may own:

• shares of an operating company;
• shares of several businesses;
• cash;
• marketable securities;
• investment accounts;
• intellectual property;
• real estate;
• loans receivable from related corporations; or
• other investments and assets.

A holding company can also sit at the top of a larger corporate group.

For example:

Individual Shareholder → HoldCo → Operating Company

Or, in a more developed group:

Individual Shareholder → HoldCo → OpCo 1 / OpCo 2 / Property Company / Other Subsidiaries

Holding Company vs. Operating Company

The operating company, or OpCo, usually carries on the active business.

It may:

• sign customer contracts;
• employ workers;
• engage contractors;
• lease premises;
• sell goods or services;
• incur operating expenses;
• borrow money;
• deal with suppliers; and
• face the ordinary liabilities associated with the business.

HoldCo generally sits above or alongside those activities and owns investments or shares rather than carrying on the principal operating business.

Why Do Business Owners Use Holding Companies?

There is no single reason to create a holding company.

Common objectives include:

• moving excess cash out of the operating company;
• separating investments from day-to-day operating risks;
• organizing ownership of multiple businesses;
• holding shares of subsidiaries;
• planning for future business acquisitions;
• corporate succession planning;
• estate planning;
• preparing for a future sale;
• facilitating certain tax-planning strategies; and
• creating a cleaner corporate group structure.

The appropriate reason should be identified before the structure is implemented.

Reason 1: Separating Excess Cash From the Operating Business

Suppose an operating company earns more cash than it needs for payroll, suppliers, taxes and working capital.

Leaving all of that cash permanently in OpCo can mean that a growing pool of investment assets remains inside the same corporation that carries the business’s operating exposure.

A holding-company structure can sometimes allow the owners to move excess corporate funds to HoldCo through properly declared intercorporate dividends.

That can place retained capital in a separate corporation.

Are Dividends From OpCo to HoldCo Tax-Free?

You will often hear that dividends can be paid “tax-free” from an operating company to its holding company.

That statement needs qualification.

Under section 112 of the federal Income Tax Act, taxable dividends received by one taxable Canadian corporation from another taxable Canadian corporation can generally be deducted in calculating taxable income.

This commonly allows dividends to move between connected Canadian corporations without ordinary Part I corporate income tax being imposed at each level.

However, the tax rules contain important exceptions and anti-avoidance provisions. Part IV refundable tax may also apply in certain circumstances.

Accordingly, dividends between OpCo and HoldCo should be coordinated with the corporation’s accountant rather than simply transferred between bank accounts because the owner has heard that intercorporate dividends are always tax-free.

Reason 2: Separating Investment Assets From Operating Risk

Operating companies face business risks.

Depending on the industry, those risks may include:

• customer claims;
• contract disputes;
• employee claims;
• supplier disputes;
• lease obligations;
• professional liability;
• product claims;
• regulatory issues;
• bank debt; and
• litigation.

Holding significant passive investments outside the operating corporation can create some legal separation between those assets and OpCo’s ordinary operating liabilities.

But a HoldCo should not be marketed as a magic “asset-protection” device.

Its effectiveness depends on how the structure is implemented, when assets are transferred, the nature of existing creditor claims, guarantees, security agreements, intercorporate obligations and other facts.

Moving assets after a serious claim has already arisen can raise very different issues from establishing a legitimate corporate structure years before any dispute exists.

Personal Guarantees Can Reduce the Separation

Business owners should also remember that lenders and landlords may request personal or corporate guarantees.

For example, a bank financing OpCo may request:

• a personal guarantee from the shareholder;
• a guarantee from HoldCo;
• security over corporate assets; or
• other cross-corporate security.

If HoldCo guarantees OpCo’s obligations, some of the separation the owner hoped to achieve may be reduced.

Financing documents therefore need to be reviewed carefully.

Reason 3: Investing Retained Corporate Earnings

HoldCo can also be used to hold investments funded from corporate earnings.

For example, HoldCo may maintain:

• cash reserves;
• GICs;
• marketable securities;
• investment portfolios;
• loans to related companies; or
• other passive assets.

This can be useful where the shareholder does not personally need all of the business’s after-tax corporate earnings immediately.

However, passive investment income earned within associated private corporations can have tax consequences.

Passive Income Can Affect the Small Business Deduction

A common misconception is that creating HoldCo allows unlimited passive investment income without affecting OpCo’s tax position.

That is not necessarily the case.

For federal tax purposes, the business limit of a Canadian-controlled private corporation can be reduced where the corporation and its associated corporations have combined adjusted aggregate investment income above $50,000.

The federal business limit is progressively reduced between $50,000 and $150,000 of combined adjusted aggregate investment income and can be eliminated once that income exceeds $150,000.

Because HoldCo and OpCo will commonly be associated corporations, passive income earned in HoldCo may therefore affect the corporate group.

This is one reason the tax modelling should be performed by the accountant before deciding how much money to move into investment assets.

Associated Corporations Also Share the Small Business Limit

Creating another corporation does not normally give the business owner another separate $500,000 federal small-business limit.

Associated Canadian-controlled private corporations generally have to share the available federal business limit.

This can be important where the business operates through several related corporations.

Reason 4: Preparing for the Future Sale of the Business

A holding-company structure can also be relevant to long-term exit planning.

A business owner who may eventually sell shares of OpCo will often want their accountant to monitor whether those shares can qualify as qualified small business corporation shares.

Eligibility can be important where the shareholder hopes to use the lifetime capital gains exemption.

The relevant tax tests include requirements relating to:

• the corporation’s status;
• how its assets are used;
• the composition of its assets during the relevant period; and
• the shareholder’s holding period.

Excess cash and passive investment assets inside OpCo can become relevant to those tests.

Accountants sometimes recommend moving appropriate excess assets outside OpCo well before an anticipated sale as part of what is commonly called corporate “purification.”

This should be planned early. Trying to restructure immediately before a sale may not produce the same result as properly planning years in advance.

Reason 5: Owning Multiple Businesses

A business owner may eventually operate several companies.

For example:

HoldCo

• 100% of Restaurant OpCo;
• 100% of E-Commerce OpCo;
• 100% of Service OpCo; and
• investment assets.

Using a parent corporation can make the group easier to organize from a governance and ownership perspective.

It may also make future acquisitions easier to conceptualize because HoldCo can acquire shares of additional operating businesses.

Reason 6: Succession and Estate Planning

Holding companies are also frequently used as part of broader estate and succession structures.

Depending on the circumstances, planning may involve:

• an estate freeze;
• growth shares;
• different voting and non-voting share classes;
• family trusts;
• transfers to children;
• spousal shareholdings;
• corporate-owned life insurance; or
• future management succession.

Those structures involve significant tax and estate-planning considerations and should be implemented collaboratively by legal and accounting advisers.

How Do You Actually Open a Holding Company in Canada?

The incorporation itself is similar to incorporating another Canadian business corporation.

The more important issue is designing the structure properly.

Step 1: Determine Why You Need HoldCo

Before incorporating, identify what HoldCo is supposed to accomplish.

For example:

• Will it own an existing operating company?
• Will it be incorporated before a new OpCo?
• Will it hold investments?
• Will it own real estate?
• Will it acquire other companies?
• Will multiple shareholders own HoldCo?
• Is this part of an estate freeze?
• Is a future sale anticipated?

The answer can affect the incorporation, share structure and reorganization steps.

Step 2: Speak With Your Accountant Before Implementing the Structure

Holding-company structures are heavily influenced by tax planning.

The accountant should generally advise on matters such as:

• whether HoldCo makes sense;
• the desired tax structure;
• share ownership;
• paid-up capital;
• adjusted cost base;
• section 85 elections;
• intercorporate dividends;
• passive investment income;
• associated-corporation rules;
• capital gains exemption planning;
• estate freeze planning; and
• future succession.

The lawyer can then implement the corporate steps necessary to give effect to the tax plan.

Step 3: Choose Federal or Provincial Incorporation

A HoldCo can generally be incorporated federally or provincially.

For an Ontario business owner, the two common options are:

• an Ontario corporation under the Business Corporations Act; or
• a federal corporation under the Canada Business Corporations Act.

The appropriate jurisdiction can depend on factors such as:

• where the corporate group operates;
• name protection;
• administrative preferences;
• future expansion plans;
• existing group structure; and
• professional advice.

A federal corporation operating in Ontario may also have provincial registration obligations.

Step 4: Choose the Share Structure

This is more important than simply choosing a company name.

A basic HoldCo may require only a relatively simple share structure.

More advanced structures may use:

• voting common shares;
• non-voting common shares;
• preferred shares;
• fixed-value shares;
• growth shares;
• redeemable shares; and
• multiple classes with different dividend rights.

The share structure should reflect the intended tax and succession plan rather than being selected arbitrarily.

Step 5: Incorporate HoldCo

The incorporation generally requires decisions concerning:

• the corporate name;
• registered office;
• directors;
• number of directors;
• authorized share classes;
• share-transfer restrictions;
• other provisions in the articles; and
• the individuals who ultimately control the corporation.

Once incorporated, HoldCo exists as a separate legal person.

Step 6: Complete the Organizational Documents

Incorporation is not the end of the process.

The corporation should generally have an organized minute book containing documents such as:

• articles;
• certificate of incorporation;
• organizational resolutions;
• by-laws;
• director and officer records;
• share subscriptions;
• share certificates or uncertificated share records;
• securities registers;
• shareholder registers;
• signing-authority resolutions; and
• beneficial-ownership or significant-control records required by applicable legislation.

Where HoldCo is federally incorporated, corporations governed by the Canada Business Corporations Act generally have additional filing obligations relating to individuals with significant control.

Step 7: Open the Appropriate Banking and Tax Accounts

HoldCo should be treated as a corporation separate from the shareholder and OpCo.

Depending on how it will be used, this may involve:

• a separate corporate bank account;
• investment accounts;
• a CRA business number;
• a corporate income-tax account;
• other CRA program accounts where actually required; and
• its own accounting records.

Funds should not simply move between the shareholder, OpCo and HoldCo without being properly characterized and recorded.

Step 8: Make HoldCo the Owner of OpCo

This is the part many business owners miss.

Suppose you currently own:

You → 100% of OpCo

You incorporate HoldCo.

At that point you have:

You → 100% of OpCo

and separately:

You → 100% of HoldCo

HoldCo does not yet own OpCo.

If the intended structure is:

You → HoldCo → OpCo

the OpCo shares must be transferred to HoldCo through an appropriately structured transaction.

Can You Just Transfer Your OpCo Shares to HoldCo for $1?

This should not be done casually.

Shares of an established operating company may have substantial fair market value.

A transfer to a corporation that does not occur on an appropriate tax-deferred basis can potentially trigger an immediate disposition for tax purposes.

Before moving the shares, the lawyer and accountant should determine:

• the fair market value of the OpCo shares;
• their adjusted cost base;
• their paid-up capital;
• what consideration HoldCo will issue;
• whether a section 85 rollover should be used;
• the appropriate elected amount;
• whether additional share classes are needed;
• whether a price-adjustment clause is appropriate; and
• what corporate approvals and records are required.

What Is a Section 85 Rollover?

Subsection 85(1) of the federal Income Tax Act can allow a taxpayer to transfer eligible property to a taxable Canadian corporation while jointly electing an amount for tax purposes within the statutory rules.

It is commonly used in corporate reorganizations involving transfers of shares to a holding company.

The election is generally made using CRA Form T2057.

A properly structured transaction may allow an owner to transfer appreciated OpCo shares to HoldCo without immediately recognizing all of the accrued gain that could otherwise arise on a normal disposition.

That does not mean section 85 makes the gain disappear permanently. It is generally a tax-deferral mechanism.

What Documents Can Be Required for a Section 85 HoldCo Reorganization?

Depending on the structure, the implementation may include:

• HoldCo incorporation documents;
• a section 85 rollover or share-transfer agreement;
• valuation information;
• director resolutions;
• shareholder resolutions where required;
• share-transfer instruments;
• new HoldCo share subscriptions or issuances;
• OpCo securities-register updates;
• HoldCo securities-register updates;
• share certificates;
• corporate minute-book updates;
• price-adjustment provisions where appropriate; and
• the T2057 election coordinated with the accountant.

If you are changing an existing corporate ownership structure, see our guide on how to change ownership of a corporation in Ontario.

What Happens After HoldCo Owns OpCo?

Once the reorganization is complete, the structure may look like:

Individual → HoldCo → OpCo

OpCo continues operating the business.

HoldCo owns the OpCo shares.

If appropriate corporate and tax requirements are met, OpCo may then declare dividends on the shares held by HoldCo.

HoldCo can retain those funds, reinvest them, lend funds within the corporate group where appropriate, or deploy the funds for other legitimate corporate purposes.

Do Customers Need to Know About HoldCo?

Usually the customer should continue contracting with the corporation actually carrying on the business.

If OpCo is the operating entity, its contracts, invoices and customer relationships should generally remain in OpCo’s name unless the business model is intentionally being changed.

Creating HoldCo does not necessarily mean customer contracts should suddenly be entered into by HoldCo.

Should HoldCo Employ the Workers?

Not necessarily.

If OpCo operates the business, it will often remain the appropriate entity to employ workers or engage operational contractors.

Moving employees, contracts or operations to HoldCo can create additional legal, tax and administrative issues.

The function of each corporation should be clearly defined.

Can HoldCo Own Intellectual Property?

Yes, depending on the structure.

Some corporate groups place valuable intellectual property in a separate corporation and license it to OpCo.

That can involve:

• trademarks;
• software;
• copyright;
• brands;
• proprietary systems;
• domain names; or
• other intellectual property.

But the IP should not simply be moved informally.

The transfer itself can have tax consequences, and a proper licence or intercompany agreement may be required.

Can HoldCo Own Real Estate?

It can, but the fact that a corporation is called a holding company does not mean real estate should automatically be placed in it.

The owner should consider:

• land transfer tax;
• income tax;
• HST;
• mortgage consent;
• financing;
• liability exposure;
• whether a separate property corporation is preferable; and
• how the property relates to the operating business.

If you are considering transferring existing Ontario real estate to a corporation, see our guide on transferring property to a holding company in Ontario.

Should HoldCo Own OpCo From the Beginning?

Sometimes yes. Sometimes no.

If a business is being started from scratch and the owners already know they want a HoldCo structure, it may be simpler to incorporate HoldCo first and have HoldCo subscribe for the shares of OpCo from the outset.

This can avoid having to transfer appreciated OpCo shares later.

But introducing HoldCo from day one is not automatically the best approach for every founder.

Issues can include:

• capital gains exemption planning;
• future investors;
• shareholder agreements;
• financing;
• estate planning;
• multiple founders;
• non-resident shareholders; and
• administrative cost.

The structure should be chosen based on the business owner’s actual plan rather than because “every corporation should have a HoldCo.”

Holding Companies and the Lifetime Capital Gains Exemption

This area needs particular care.

An individual selling shares that qualify as qualified small business corporation shares may be eligible for the lifetime capital gains exemption, subject to the applicable tax rules.

Among other requirements, CRA’s current QSBC rules examine the corporation’s asset composition and a 24-month holding period.

Introducing a holding company can affect which shares the individual ultimately owns and which corporation’s shares may eventually be sold.

This is one reason HoldCo planning should be discussed well before an anticipated sale.

A business owner should not transfer personally held OpCo shares to HoldCo immediately before a sale without first understanding the capital-gains-exemption consequences.

Holding Companies and Multiple Shareholders

Where several business partners own OpCo, each may potentially have their own holding corporation.

For example:

Shareholder A → HoldCo A ↘

Shareholder B → HoldCo B → OpCo

Shareholder C → HoldCo C ↗

That structure can add flexibility, but it also means the shareholder agreement needs to be reviewed carefully.

It should address issues such as:

• whether shares can be held through a HoldCo;
• who controls each HoldCo;
• whether new persons can acquire interests in a HoldCo;
• whether the individual shareholder must personally guarantee obligations;
• what happens if control of the HoldCo changes;
• how rights of first refusal apply;
• how buy-sell provisions operate; and
• whether the individual owner must personally comply with restrictive covenants.

Do You Need a Shareholder Agreement for HoldCo?

If only one person owns HoldCo, a shareholder agreement is generally unnecessary because there are no other shareholders with whom to govern a relationship.

Where multiple people own HoldCo, however, a shareholder agreement may become important.

Issues can include:

• decision-making;
• dividend policy;
• investment authority;
• share transfers;
• death or disability;
• buyouts;
• deadlock;
• estate planning; and
• succession.

Can a Holding Company Pay Personal Expenses?

The existence of HoldCo does not turn corporate funds into the shareholder’s personal money.

HoldCo is a separate legal person.

Payments or transfers to shareholders need to be properly characterized, for example as:

• salary;
• dividends;
• repayment of a legitimate shareholder loan;
• reimbursement of valid corporate expenses; or
• another properly documented transaction.

Using corporate accounts indiscriminately for personal expenses can create tax and accounting problems.

Can HoldCo Lend Money Back to OpCo?

Potentially.

Corporate groups frequently use intercompany loans.

But the transaction should be documented properly.

Depending on the circumstances, documents may include:

• a promissory note;
• loan agreement;
• director resolutions;
• interest provisions;
• repayment terms;
• security documentation; and
• proper accounting entries.

The tax consequences should also be reviewed.

Does a Holding Company Have to File a Tax Return?

Generally, a resident Canadian corporation must file a corporate income-tax return for each tax year even where there is no tax payable.

Accordingly, creating HoldCo normally creates additional annual accounting and compliance costs.

Depending on the corporation, these can include:

• T2 corporate tax returns;
• annual corporate returns;
• minute-book maintenance;
• financial statements or accounting records;
• investment reporting;
• beneficial-ownership compliance; and
• professional fees.

The benefits should justify the additional complexity.

Common Holding Company Mistakes

Some of the most common problems I would try to avoid include:

• incorporating HoldCo without first understanding why it is needed;
• assuming incorporation alone places OpCo underneath HoldCo;
• transferring valuable OpCo shares for a nominal amount without tax advice;
• failing to consider a section 85 rollover;
• assuming all intercorporate dividends are automatically tax-free in every circumstance;
• moving too much working capital out of OpCo;
• ignoring passive-income rules;
• assuming a second corporation creates another full small-business limit;
• failing to consider capital-gains-exemption planning;
• ignoring existing shareholder agreements;
• failing to review bank or landlord security;
• moving assets after a creditor problem has already arisen;
• mixing corporate and personal expenses;
• failing to document intercompany loans;
• failing to maintain HoldCo’s minute book;
• ignoring annual tax and corporate filings; and
• using HoldCo for transactions it was never intended to handle.

What We Have Been Working On in 2026

One of our 2026 corporate reorganization matters provides a good example of how a holding-company structure is actually implemented.

Two business owners personally held all of the shares of an existing Canadian operating company, in a 60/40 ownership arrangement.

A new Canadian holding corporation had been incorporated. The next step was not simply to start calling it “HoldCo.” The operating-company shares actually had to be transferred from the individual shareholders to the new corporation.

We prepared the legal rollover documentation under subsection 85(1) of the Income Tax Act. All of the owners’ operating-company shares were transferred to the new holding corporation, with shares of HoldCo being issued to the owners as consideration. The structure contemplated a joint T2057 election and corresponding corporate records. :chatgpt-content-reference{index=”0″}

The restructuring then required a further ownership adjustment. A subsequent share transfer changed the ownership of the holding corporation from the initial proportions to a 70/30 structure, together with cancellation of the original incorporation shares and updates to the securities register and share certificates. :chatgpt-content-reference{index=”1″}

That matter illustrates an important point: a holding-company reorganization can involve several coordinated legal steps—incorporation, share transfers, new share issuances, tax elections, ownership adjustments and minute-book updates.

The example above has been anonymized and certain details have been generalized to protect client confidentiality.

A Simple Holding Company Example

Suppose Priya owns 100% of a successful Ontario consulting company.

The company earns $500,000 per year and does not require all of its after-tax profits for operations.

Priya and her accountant determine that a holding-company structure is appropriate.

The structure might initially be:

Priya → Consulting OpCo

HoldCo is then incorporated.

Following an appropriately structured reorganization:

Priya → HoldCo → Consulting OpCo

OpCo continues providing consulting services.

HoldCo owns the OpCo shares.

Subject to the applicable corporate and tax rules, OpCo may declare dividends to HoldCo, and HoldCo may retain or invest those funds.

Holding Company Setup Checklist

Before implementing a HoldCo structure, I would generally want answers to the following questions:

• Why is HoldCo being created?
• Does an OpCo already exist?
• Who currently owns OpCo?
• What classes of OpCo shares are outstanding?
• What are those shares worth?
• Is there a shareholder agreement?
• Are there transfer restrictions?
• Will HoldCo be Ontario or federally incorporated?
• Who will own HoldCo?
• What share classes should HoldCo have?
• Is a section 85 rollover required?
• What consideration will HoldCo issue?
• Has the accountant confirmed the elected amounts?
• Who will prepare and file the T2057?
• Does OpCo have enough working capital after any dividend?
• Are bank consents required?
• Does the shareholder agreement permit HoldCo ownership?
• Are personal or HoldCo guarantees required?
• Will HoldCo hold passive investments?
• Has the passive-income impact been modelled?
• Could the structure affect QSBC or capital-gains-exemption planning?
• Will HoldCo own real estate?
• Will HoldCo own intellectual property?
• Are intercompany agreements required?
• Have the corporate registers been updated?
• Have beneficial-ownership obligations been addressed?

Do You Need a Lawyer to Open a Holding Company?

It is technically possible to incorporate a basic corporation without a lawyer.

The greater legal value usually arises where HoldCo is being used as part of an existing business structure.

A lawyer can assist with:

• incorporating HoldCo;
• designing the authorized share structure;
• preparing organizational documents;
• reviewing the existing OpCo minute book;
• confirming ownership and transfer restrictions;
• implementing section 85 reorganizations;
• preparing share-transfer agreements;
• preparing director and shareholder resolutions;
• issuing new shares;
• updating corporate registers;
• coordinating with the accountant;
• reviewing shareholder agreements;
• documenting intercompany arrangements; and
• maintaining the resulting corporate records.

How Falcon Law PC Can Help

Falcon Law PC assists entrepreneurs and business owners across Ontario and Canada with holding companies, operating companies, incorporations, section 85 rollovers, corporate reorganizations, share transfers and ongoing corporate matters.

You can learn more about our legal services for entrepreneurs and business owners.

If you need a new corporation established, you can also QuickStart a business incorporation.

If you already have an operating corporation and want to add HoldCo, I generally recommend sending us the OpCo articles, minute book, securities register, shareholder agreement if one exists, and your accountant’s proposed tax structure. We can then determine the legal steps needed to move from the existing ownership structure to the intended HoldCo structure.

The key is not simply incorporating another company. It is making sure the corporations, shares, tax plan and legal documents all fit together.

This article is intended for general informational purposes only and does not constitute legal, tax, accounting, investment or estate-planning advice. Holding-company structures are highly fact-specific and should be implemented in coordination with appropriate legal and tax advisers.