Let’s Discuss about Holding companies
“Basically, a holding company is one which holds directly or through a nominee a majority of voting shares in the subsidiary company.”
A holding company is basically a form of partial consolidation that generally arises out of lust for power. It can be said to be a business organization which is created for the purpose of combining industrial units by owning a controlling amount of their share capital.
Largely a holding company is one which holds directly or through a nominee a majority of voting shares in the subsidiary company or possesses the power to nominate the majority of the directors.
A holding company may have a number of subsidiary companies or a subsidiary company may be a holding company of another company or companies. The subsidiary of a subsidiary company is also a subsidiary company of the holding company, although a subsidiary company has a separate legal entity. For all practical purposes subsidiaries are under the effective control of a holding company.
Depending upon the purpose and condition in which holding companies are formed, they are of different kinds. In pure holding companies, a company just holds the controlling shares of other companies by way of investment but it does not participate in the business directly.
When an existing concern seeks to consolidate competing units by organizing subsidiaries, it is the case of parent’s holding company. It is a new company specially formed to take over the stock of many existing companies. Consolidated holding company is a new company specially formed to take over the stock of many existing companies. An Operational or mixed holding company not only holds the shares of subsidiaries but is also engaged in productive activities.
Financing holding companies are interested in making profits by financing activities of the subsidiary. Such companies may not hold the shares of subsidiary for a longer period and in practice it tries to earn profits by disposing off the shares as early as possible.
When the main aim of a holding company is not to control the management of the subsidiary but to earn regular income from investment, it is called investment holding company.
Thus, we see that various kinds of holding companies have their own merits and demerits and it depends upon the board of directors as to which kind of company do they want to run.
Author - DeeKay
Tags - Finance, Economy
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