Holding Company

Loading the player...

What is a 'Holding Company'

A holding company is a parent corporation, limited liability company or limited partnership that owns enough voting stock in another company to control its policies and management. A holding company exists for the sole purpose of controlling another company, which might also be a corporation, limited partnership or limited liability company, rather than for the purpose of producing its own goods or services. Holding companies also exist for the purpose of owning property such as real estate, patents, trademarks, stocks and other assets. If a business is 100% owned by a holding company, it is called a wholly owned subsidiary.

BREAKING DOWN 'Holding Company'

One benefit of forming a holding company is that the holding company itself is protected from the losses. If one of their companies goes bankrupt, the holding company experiences a capital loss and a decline in net worth, but the bankrupt company’s debtors and creditors can’t pursue the holding company for remuneration. Thus, a major corporation might structure itself as a holding company with one subsidiary to own its brand name and trademarks, another to own its real estate, another to own its equipment and others to operate each franchise. This way, each subsidiary as well as the holding company itself has limited financial and legal liability. Structuring a company this way can also limit tax liability by strategically basing certain parts of the business in jurisdictions with lower tax rates.

Holding companies also allow individuals to protect their personal assets. Rather than owning assets personally and therefore being liable for their debts, potential lawsuits and other risks, holding companies can own the assets so that only the holding company’s assets and not the individual’s assets are at risk.

A holding company’s operations consist of overseeing the companies it owns. It can hire and fire managers if necessary, but those companies’ managers are responsible for their own operations; the holding company is not. Although the holding company does not manage the day-to-day operations of the companies it controls, the owners should still understand how these their subsidiaries operate to evaluate the businesses’ performance and prospects on an ongoing basis.

RELATED TERMS
  1. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  2. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
  3. Parent Company

    A company that controls other companies by owning an influential ...
  4. Company

    An entity formed to engage in a business. A company may be organized ...
  5. Associate Company

    A corporation whose parent company possesses only a minority ...
  6. Limited Liability

    A type of liability that does not exceed the amount invested ...
Related Articles
  1. Investing

    What's a Holding Company?

    A holding company is a corporation that owns enough voting stock in another company to control its management and policies.
  2. Markets

    What is a Wholly Owned Subsidiary?

    A company whose common stock is 100% owned by another company, called the parent company.
  3. Investing

    What's a Subsidiary?

    A subsidiary is a corporation owned 50% or more by another corporation. The owning corporation is usually called the parent or holding company. A company that is 100% owned and controlled by ...
  4. Investing

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  5. Investing

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  6. Investing

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  7. Investing

    Explaining Affiliate, Associate And Subsidiary

    Affiliate, associate and subsidiary are all terms referring to the degree of ownership a parent company holds in another company.
  8. Investing

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  9. Markets

    Why Do Companies Care About Their Stock Prices?

    Read on to learn more about the nature of stocks and the true meaning of ownership.
  10. Entrepreneurship & Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
RELATED FAQS
  1. What is the difference between a subsidiary and a wholly owned subsidiary?

    Understand the primary differences between a subsidiary company and a wholly owned subsidiary, and their relationship to ... Read Answer >>
  2. Are domestic and foreign subsidiaries included on a company's financial statements?

    A subsidiary is a company that is controlled by another 'parent' company. The subsidiary acts and operates like its own entity ... Read Answer >>
  3. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ... Read Answer >>
  4. Are there any practical differences between a wholly owned subsidiary and a regular ...

    Explore the real, practical differences between a wholly owned subsidiary and a regular subsidiary. Local conditions determine ... Read Answer >>
  5. What are the major types of business in the private-sector and how do they differ ...

    Learn more about how private companies are organized and how large and small companies differ from one another in organization ... Read Answer >>
  6. How do wholly owned subsidiaries operate in the European Union?

    Find out how wholly owned subsidiaries and their parent companies are treated in the European Union, specifically regarding ... Read Answer >>
Trading Center