Fact Check: Holding Company

Means must be subsidiary to ends

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Ludwig Mies van der Rohe

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

In some jurisdictions around the world, holdimg companies are called parent companies, which, besides holding stock in other companies, can conduct trade and other business activities themselves. Holding companies reduce risk for the sharelders, and can permit the ownership and control of a number of different comoanies. The New York Times uses the term parent holdimg 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 claimed. 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 Comoany B to its shareholders, as the payment of dividends from B to A is essentially transferring cash within a single enterprise (following the Accounting Entity concept in public accounting rules). Any other shareholders of Company B will pay the usual taxes on dividends, as they are legitimate and ordinary dividends to these sharelders.

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

In addition, a holding company may be defined as a company that owns enough voting power in another firm (called subsidiary) to control management and operations by influencing or electing the members of its Board of Directors. There are other definitions of a holding company depending on the jurisdiction, with the main elements of the definition being contained in an enacted corporate law.

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

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