DEFINITION of 'Interlocking Shareholdings'

A method of creating a unified business group by exchanging shares. By exchanging shares, a business group remains composed of a variety of distinct legal entities, rather than all being part of the same legal entity. This method of business organization has advantages in defending against hostile takeovers, since the business is composed of many legal entities. However, this system can complicate the ownership position structure of the group, especially when there are many shareholders.

BREAKING DOWN 'Interlocking Shareholdings'

In the U.S. and Britain, business favors the use of a single primary legal entity which holds all other entities and business divisions. For example, a holding company may have many different business areas operating worldwide, but all are consolidated under a primary U.S. parent company. However, in many other parts of the world interlocking shareholding is a common tactic used to form diversified business groups.

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