Many business leaders choose a management company to optimise their income for tax purposes. A management company is a popular structure for independent business leaders and executives to grow and protect their private assets.

The most well-known partnerships are the limited liability company and the limited partnership.

If you would like to know more about the management company, be sure to read on. Indeed, this article provides an overview of the benefits, tax opportunities, and pitfalls involved in setting up and managing a management company.

What is a management company?

A management company is a company set up to provide management services, for one or more companies. This structure is often used to manage income in a tax-efficient way and protect private assets. By channelling income through a management company, they can optimise the tax burden.

Thus, in a management company, services are provided to other companies. The owner of the management company is often also the manager or director and can pay himself wages or dividends from the company.

What is the advantage of a management company?

The main advantage of a management company is the separation of business and private assets. This allows directors and company managers to limit their personal risk, especially in situations where the company itself can be held liable. A management company helps business leaders optimise income for tax purposes.

For the self-employed and senior executives, a management company also offers the opportunity to manage income flexibly, through fees, dividends, or salary payments, which can lead to a more favourable corporate tax (tax burden) and lower social contributions. Customised articles of association can also be drafted to set out certain conditions and rights, such as share transfer conditions.

What does it cost to set up a management company?

Setting up a management company requires a notarial deed, publication of articles of association and a financial plan. Depending on the company form chosen (usually a private limited company), formation costs may vary. The financial plan plays an important role as the tax authorities increasingly look at the reality behind the declared income and expenses. So it is important to set a realistic forecast before incorporation, remember incorporation liability

Who can you turn to for setting up your management company?

Do you want an efficient and digital start-up with your own management company? Then get in touch with Bizantium, our partner of choice for incorporation of private limited companies. They take care of notary, financial plan and all other incorporation formalities. After your company is incorporated, your accountant takes over.

Working with a management company: why, why not?

A management company offers opportunities for tax optimisation, but also brings responsibilities. A management company helps business owners optimise their income for tax purposes. Entrepreneurs can control taxes by distributing their income through the company as directors' fees or dividends, which can reduce personal income tax.

On the other hand, performing management services through a management company requires careful planning and monitoring by an accountant to stay in line with tax authorities' rules so as not to inadvertently increase tax burden.

A management company for corporate executives to optimise income for tax purposes

Management companies offer several tax advantages. By keeping income within the company and investing in a property, for example, the director can reduce the tax burden. Furthermore, dividends can be subject to a lower withholding tax, and paying out dividends or wages can be more advantageous than paying a traditional salary, depending on the situation. Thus, a management company can help optimise income for tax purposes.

A company can also support succession planning, transferring shares and property rights to family members via gift.

Management company for pension accrual

A management company can help with pension accrual by setting aside reserves in the form of liquidation reserves or accumulated capital reserves, which can be distributed on a tax-advantaged basis as retirement approaches.

It is also possible for a company director to have his accumulated assets distributed at retirement, which is advantageous for inheriting these assets to family members, provided this planning is done carefully and timely.

Building up reserves and tax-advantaged distributions

Management companies make it possible to create financial reserves and distribute them in a tax-deferred manner, for example by using a liquidation reserve. In this way, the company can grow savings or investments within the company. In addition, managers can choose to distribute part of the accumulated reserves as dividends, which can lead to a lower tax burden.

Putting in expenses

Managing business expenses through a management company offers opportunities to reduce the tax burden. Many expenses, such as office expenses, transport, or professional training, can be contributed within the company. In this way, the taxable income lowers and thus the corporate income tax payable, which is advantageous for business managers. However, this requires accurate administration and accounting in the financial statements, as unjustified contributions can be corrected by the tax authorities.

Protecting private assets from creditors

Finally, a management company ensures that the private assets of directors are better protected, especially important for family partnerships.

Creditors of the company can only claim the assets within the company and not the private assets of the managers. In case of bankruptcy, personal assets often remain beyond the reach of creditors, allowing entrepreneurs to secure their private property. A well-drafted company structure therefore limits the risk of personal liability and thus offers greater peace of mind.