Beyond Incorporation: Why Startups Should Consider a Holdco–Opco Structure in CanadaPosted on August 25, 2025

Opco (Operating Company) is the entity that actually runs the business. It is where revenue is generated, transactions occur, and employees are hired. In many cases, it serves as the “public facing” side of the business that interacts directly with customers and clients, selling products or services in a traditional way. Opco also bears all the legal liability for business operations.

Holdco (Holding Company), by contrast, operates behind the scenes. It holds shares in the Opco, receives dividends, manages assets, and plays a more strategic role. A Holdco typically owns 100% of one or more Opcos, and while it does not directly engage in business operations, it manages the profits and assets generated by Opco. In this way, Holdco adds an extra layer of protection and management to the Opco structure. Importantly, both Holdco and Opco are incorporated legal entities.

1. Asset Protection

One of the biggest reasons to use a Holdco is asset protection. By transferring profits or key assets from Opco to Holdco, those assets are safeguarded even if Opco faces bankruptcy or litigation. In addition, dividends paid from Opco to Holdco are generally tax-free (intercorporate dividends), allowing funds to be preserved and reinvested without immediate personal tax liability.

2. Lifetime Capital Gains Exemption (LCGE)

The LCGE allows Canadian residents to sell shares of a qualifying small business corporation (SBC) and exempt a portion of the resulting capital gains from tax.

• Disposals before June 25, 2024: up to $1,016,836

• Disposals after June 25, 2024: up to $1.25 million

To qualify, the corporation must meet certain conditions for at least 24 months prior to the sale, and at least 90% of its assets must be active business assets located in Canada. By transferring excess cash or passive investments into Holdco, Opco can increase its proportion of active business assets, making it more likely to qualify for the LCGE.

3. Long-Term Growth and Investment Flexibility

Funds accumulated in Holdco can be deployed into financial investments, real estate purchases, early-stage startup investments, or dividends to family members. This provides flexibility for long-term wealth management and tax planning. Capital can be reinvested in a wide range of assets, from securities to private equity, enabling founders to build and preserve wealth across generations. In M&A or restructuring scenarios, the Holdco structure also allows for flexible strategies, such as selling only Opco shares or isolating liabilities.

4. Points to Consider

If too many passive assets accumulate in Holdco, the Opco may lose LCGE eligibility. Operating an additional corporation also increases accounting, legal, and compliance costs. Moreover, interactions between income splitting (TOSI rules) and the small business deduction (SBD) can create unexpected tax consequences. This is why expert guidance is essential when designing such a structure.

Ultimately, the Holdco–Opco structure goes far beyond basic incorporation. It serves as a powerful tool that integrates asset protection, tax optimization, and long-term growth planning. For startups anticipating future fundraising or an exit, it is wise to consider this structure from the very beginning. Rise Partners designs optimal corporate structures tailored to each company’s needs, providing ongoing partnership across tax, legal, and operational dimensions.

“A successful startup is more than just running a business. The right structure from the start is what determines its future value.”