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Operating Company vs. Holding Company: What's the Difference?

  • Writer: Arshya Mittal
    Arshya Mittal
  • Aug 16
  • 2 min read

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When setting up a business in Canada, you’ll often hear about operating companies and holding companies. While they sound similar, they serve very different purposes in tax planning and asset protection.





At Mittal CPA Professional Corporation, we help business owners understand when and how to use each type of corporation.

What is an Operating Company?


An operating company is the “active” business that earns income, hires employees, and interacts with customers.

  • Runs daily business operations.

  • Holds most business risks (debts, contracts, liability).

  • Pays corporate taxes on profits.

What is a Holding Company?


A holding company doesn’t run the day-to-day business. Instead, it:

  • Owns shares in the operating company.

  • Receives tax-free dividends from the operating company.

  • Protects and invests profits outside the risks of daily operations.

  • May hold real estate, stocks, or other investments.

Why Use Both Together?


Using a holding company alongside an operating company can provide:

  • Asset Protection – Moving excess profits into a holding company shields them from creditors or lawsuits.

  • Tax Deferral – Dividends can be moved into the holding company without immediate personal tax.

  • Succession Planning – Shares in a holding company make it easier to pass ownership to family or prepare for a sale.

Simple Example


  • Your Operating Company runs your consulting business.

  • You earn $400,000 profit this year.

  • Instead of withdrawing all of it personally (and paying high tax), you move $250,000 as a tax-free dividend to your Holding Company.

  • The funds are now protected and can be invested until you need them.

FAQ


Do I need a holding company if I already have an operating company?

Not always. If your business generates more income than you need personally, or if you want to protect assets, a holding company may be beneficial.


Can I add a holding company later?

Yes, many businesses start with just an operating company and add a holding company once profits grow.

How Mittal CPA Can Help


We’ll review your business structure, show you if a holding company makes sense, and help set it up properly for tax savings and asset protection.


Not sure if you need a holding company? Contact Mittal CPA Professional Corporation today to get expert advice tailored to your business.



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