Fact Check: Holding Company

A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies to form a corporate group.

In some jurisdictions around the world, holding companies are called parent companies, which, besides holding stock in other companies, can conduct trade and other business activities themselves. Holding companies reduce risk of the shareholders, and can permit the ownership and control of a number of different companies. The New York Times uses the term parent holding company.

Holding companies are also created to hold assets such as intellectual property or trade secrets, that are protected from the operating company. That creates a smaller risk when it comes to litigation.

In the United States, 80% of stock, in voting and value, must be owned before tax consolidation benefits such as tax-free dividends can be made. That is, if Company A owns 80% or more of the stock of Company B, Company A will not pay taxes on dividends paid by Company B to its shareholders, as the payment of dividends from B to A is essentially transferring cash within a single enterprise (following the principle of the Accounting Entity Concept). Any other shreholders of Company B will pay the usual taxes on dividends, as they are legitimate and ordinary dividends to these sharelders (arm's length transaction).

Sometimes, a company intended to be a pure holding company identifies itself as such by adding "Holding" or "Holdings" to its name.

A parent company that owns 51% or more voting stock in another firm (or subsidiary) to control management and operations by influencing or electing its Board of Directors. The definition of a parent company differs from jurisdiction to jurisdiction, with the definition normally being defined by way of laws dealing with other companies in that jurisdiction.

When an existing company establishes a new company and keeps majority shares with itself, and invites other companies to buy minority shares, it is called a parent company. A parent company could simply be a company that wholly owns another company, which is then known as "wholly owned subsidiary."

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