For many owner-managers, the biggest “investment account” isn’t an RRSP or TFSA—it’s retained earnings sitting on the corporate balance sheet. Treating that cash with the same discipline you apply to your core business is a cornerstone of high-net-worth financial planning. Two tools help: a holding company (Holdco) to organize capital and risks, and a written investment policy to govern how corporate money gets deployed.
When (and why) to set up a Holdco
A Holdco is a separate corporation that owns shares of your operating company (Opco) and, often, holds investments and surplus cash. In the context of high-net-worth financial planning, common reasons to add a Holdco include:
- Creditor protection and business focus. Segregating surplus cash and investments from Opco can reduce exposure to operating risks, supplier claims, and litigation.
- Sale readiness. Moving non-operating assets (marketable securities, excess cash, real estate not used in operations) to Holdco helps keep Opco “pure,” which can be important for certain small-business share sale criteria and buyer optics.
- Dividend flow and flexibility. In Canada, most inter-corporate dividends can move from Opco to a connected Holdco tax-free, letting you time personal withdrawals more deliberately.
- Family planning and governance. A Holdco can simplify share structures, freezes, and the introduction of family trusts for intergenerational planning and philanthropy.
- Banking and collateral. Lenders may prefer investment assets housed in Holdco for margin, collateral, or covenant reasons—cleaner for them, clearer for you.
A Holdco doesn’t replace personal planning; it adds an organizing layer for corporate capital so Opco can stay lean and focused.
What belongs in Holdco vs. Opco
Think in buckets:
- Opco (working capital): Operating cash, receivables, inventory, deposits, and any assets essential to day-to-day revenue generation.
- Holdco (surplus capital): Excess cash beyond a defined working-capital range, a reserve for taxes and bonuses, marketable securities, certain real estate, and strategic investments unrelated to operations.
The hand-off is typically made through inter-corporate dividends from Opco to Holdco, guided by a documented working-capital target (e.g., “two months of fixed costs + seasonality buffer”).
Build an investment policy for corporate cash
A written investment policy statement (IPS) turns intention into rules. For high-net-worth financial planning, a corporate IPS should be short, specific, and board-approved (even if you’re the only director). Key elements:
- Purpose of funds. Define what the portfolio is for: liquidity reserve, long-term growth of surplus, a future buyout, philanthropy, or estate liquidity.
- Time horizons and liquidity ladder. Segment assets (e.g., 0–12 months, 1–3 years, 3+ years) and match each segment to appropriate instruments, so operating needs never force a sale at the wrong time.
- Risk limits. Set caps on equity exposure, single-issuer concentration, and illiquid positions; specify permitted asset classes and minimum credit quality for fixed income.
- Tax profile. Note the corporate tax treatment of interest, Canadian dividends, and capital gains; address use of the capital dividend account (CDA) if realized.
- Rebalancing and cash sweeps. Establish thresholds and a schedule (e.g., quarterly or when an asset class drifts by 5%). Document how dividends from Opco are swept into Holdco and invested according to the liquidity ladder.
- Governance. List signatories, custodians, reporting cadence, and what triggers an IPS review (acquisition, new debt, major change in profitability, or ownership changes).
Guardrails that keep risk and taxes in check
- Liquidity first. Start with a true operating reserve in Opco (short-term instruments only). Next, hold a near-term reserve in Holdco for known outflows—tax installments, bonuses, debt service, and planned capital expenditures. Only then invest the long-term sleeve.
- Tax-aware asset location. Interest income is often taxed less favourably in a corporation than capital gains or Canadian dividends. Your IPS can tilt the fixed-income sleeve toward efficient structures while reserving higher-growth assets for the long-term bucket.
- Passive-income thresholds. Significant passive income inside the corporate group can interact with small-business tax limits. Monitor this yearly and adjust flows (e.g., salary vs. dividends, personal vs. corporate investing) in concert with your accountant.
- CDA opportunities. Realized capital gains and certain insurance proceeds can credit the capital dividend account, allowing tax-free capital dividends to Canadian resident shareholders. Track the CDA and use it deliberately within the broader plan.
- Diversification discipline. Avoid “double concentration.” If your operating success is tied to one sector or geography, don’t mirror that risk in Holdco’s portfolio.
- Borrowing policy. If using margin or a line of credit for investment purposes, set written limits on loan-to-value, eligible collateral, and mandatory deleveraging rules.
Integrate personal and corporate planning
Corporate investing doesn’t exist in a vacuum. Effective high-net-worth financial planning aligns Holdco decisions with personal cash needs, retirement structures, and estate goals:
- Personal withdrawals. Decide how much you’ll draw annually and by which method (salary, dividends, or a blend), so Holdco’s portfolio isn’t tapped unexpectedly.
- Registered plans and pensions. Salary that creates RRSP/IPP room may change how much you invest corporately. The IPS should reference these targets.
- Estate and insurance. Corporate-owned life insurance, if used, affects CDA planning and legacy liquidity; include it in the policy and governance notes.
- Philanthropy. If giving is part of your plan, consider in-kind donations of appreciated securities or a corporate donor-advised fund strategy; reflect this in the IPS so timing and tax treatment are consistent.
A simple framework to get started
- Define working capital for Opco and document a dividend policy for surplus.
- Incorporate Holdco (if appropriate) and open dedicated banking and custody accounts.
- Draft a one-page corporate IPS with purpose, buckets, risk limits, tax notes, and rebalancing rules.
- Set reporting (quarterly statements + annual review) and assign accountability.
- Review annually with your financial planner, accountant, and lawyer; update after major business or life events.
Turning retained earnings into a disciplined portfolio won’t replace the returns of a thriving business—but it will reduce idle cash drag, improve resilience, and create optionality when opportunities appear. With a thoughtful Holdco structure and a clear investment policy, your company doesn’t just generate profits; it compounds wealth—by design.