Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP

What is a Holding Company?

A holding company is a company that has a controlling interest in another company. In simpler terms, a holding company is a parent company that owns enough outstanding stock in another company to exercise complete control over its policies and management decisions. The company that the holding company controls is called its subsidiary. If a holding company owns a 100% stake in a subsidiary, that subsidiary is called a wholly owned subsidiary. Holding companies as well as their subsidiaries can be corporations, limited liability partnerships or limited liability companies.

How Does a Holding Company Work?

A holding company's primary objective is to control another business. However, a holding company may also be formed for owning real estate, stocks and bonds, and intellectual property such as patents and trademarks. Another reason why holding companies choose to invest heavily in subsidiaries is to shield themselves from losses and other liabilities associated with direct ownership. For example, a holding company is not liable to pay remuneration to investors if one of its subsidiaries goes bankrupt. Successful corporations usually distribute their assets, including intellectual properties among their subsidiaries. This not only minimizes their liabilities but also provides tax benefits in cases where subsidiaries are situated in lower tax zones. A holding company may also help individual investors secure their personal assets by placing their asset investments with a subsidiary, so that during an event of bankruptcy, the investors personal assets are safe from potential compensation claims. The management of a holding company is expected to oversee the functioning of its subsidiaries. However, it is usually neither possible nor advisable for a holding company to micro-manage its subsidiaries. This job is best left to the management of the individual subsidiaries, although the holding company still reserves complete authority to appoint or dismiss managers of its subsidiaries. Being associated with a major corporation has its share of benefits for the subsidiaries as well. In the event that a subsidiary needs to take a loan, its parent company can streamline the lending process by providing a downstream guarantee to the lenders on behalf of the subsidiary. Such a downstream guarantee makes it possible for a subsidiary to acquire loans of substantially higher value and at more lucrative rates of interest than would have conceivable without a guarantee. Below are a few examples of holding companies along with their subsidiaries: Berkshire Hathaway with holdings in GEICO, Dairy Queen, Long & Foster, Coca Cola, American Express, besides several other wholly owned subsidiaries, and majority as well as minority holdings Tata Sons Limited, that has holdings in Tata Steel, Tata Motors, Tata Power and other Tata Group companies Loews Corporation with majority holdings in CNA Financial Corporation, Loews Hotels, Consolidated Container Company and several other subsidiaries.

Related Topics

• Business Entities (Intro)
• Why is studying business entities important?
• Considerations When Forming a Business Entity
• Holistic (Detailed) Overview of Setting Up a Business Entity
• What are Business Entities?
• What is a Closely-held vs Publicly-held Business?
• What are the main types of business entity?
  
• What are the primary characteristics of business entities?
• What is Creation of a business entity?
• Where to Form a Business
• Incorporating in Delaware
• Forming an LLC in Nevada or Wyoming
• Creating a Company Offshore
• Promoter
• Promoter Liability
• De Jure Corporation
• Ultra Vires
• Brassplate Company
• What is Maintenance of a business entity?
• What is Continuity of a business entity?
• Business Continuity Planning
• Buy Sell Agreements
• Shotgun Clause
• Winding Up
• Dissolving a Foreign Qualification
• What is the Ownership structure of a business entity?
• Joint Stock Company
• Parent Company
• Subsidiary Company
• Wholly-Owned Subsidiary
• Operating Subsidiary
  
• Holding Company
  
• State-Owned Enterprise
• Mutual Company
• Conglomerate
• What is Control of a business entity?
• What is Personal liability of owners of a business entity?
• Entity Theory
• Piercing the Corporate Veil
• What is Compensation of business owners?
• What is Taxation of a business entity?
• What is Sales & Use tax?
• What are payroll and self-employment taxes?
• What are the major characteristics of a Sole proprietorship?
• Uniform Partnership Act
• Uniform Limited Partnership Act
• Partnership Agreement
• At-Will Partnerships
• Responsibilities of Partners to the Partnership
• Silent Partner
• Funding the Partnership
• How are Partners Compensated
• Splitting Equity in an Industrial Partnership
• Terminating the Partnership
• Types of Partnerships
• What are the main characteristics of a General partnership?
• Tort Liability of General Partner
• What are the main characteristics of a Joint venture?
• What are the main characteristics of a Limited partnership?
• Family Limited Partnership
• Master Limited Partnership
• What are the main characteristics of a Limited liability partnership?
• What are the main characteristics of a Limited liability company?
• Forming an LLC
• Articles of Organization
• Operating Agreement or LLC Agreement
• Why You Need an LLC Agreement
• LLC Compensation of Members
• LLC Taxation
• Converting to an LLC
• What are the main characteristics of a Corporation
• Articles of Incorporation 
• What to include in the Articles of Incorporation
• Corporate Bylaws
• Exiting the Corporation
• Dissenter's Rights
• What are the requirements to be an S Corporation?
• Non-Profit Organization
• NonProfit Business Entities
• Private Foundation
• A Detailed Explanation of the Sole Proprietorship
• Taxation of Sole Proprietorship
• A Detailed Explanation of the General Partnership
• 50/50 Partnerships: Never a Good Idea
• Publicly-Traded Partnerships
• A Detailed Explanation of the Limited Liability Company
• A Detailed Explanation of the Corporation
• Keepwell Agreement (Letter of Comfort)
• Personal Service Corporation Definition
• A Detailed Explanation of the Non-Profit Entity
• Public Limited Company (UK)