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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 holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies to form a
corporate group A corporate group or group of companies is a collection of parent and subsidiary corporations A corporation is an organization—usually a group of people or a company A company, abbreviated as co., is a legal entity In law, a l ...
. 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 In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty Uncertainty refers to Epistemology, epistemic situations involving imperfect or unknown information. It applies to predictions of future events, to ...

risk
for the
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a Trust law, trust or partnership) that is registered by the corporation as the ...
s, and can permit the ownership and control of a number of different companies. ''
The New York Times ''The New York Times'' is an American daily newspaper based in New York City with a worldwide readership. Founded in 1851, the ''Times'' has since won List of Pulitzer Prizes awarded to The New York Times, 132 Pulitzer Prizes, the most of a ...

The New York Times
'' also refers to the term ''parent holding company.'' Holding companies are also created to hold assets such as
intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of ...
or trade secrets, that are protected from the operation company. That creates a smaller risk when it comes to
litigation A lawsuit is a proceeding by a party or parties against another in the civil Civil may refer to: *Civic virtue, or civility *Civil action, or lawsuit *Civil affairs *Civil and political rights *Civil disobedience *Civil engineering *Civil ...
. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, 80% of stock, in voting and value, must be owned before
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
consolidation benefits such as tax-free
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
s 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 Company B to its stockholders, as the payment of dividends from B to A is essentially transferring cash within a single enterprise. Any other shareholders of Company B will pay the usual taxes on dividends, as they are legitimate and ordinary dividends to these shareholders. Sometimes, a company intended to be a pure holding company identifies itself as such by adding "Holding" or "Holdings" to its name.


By country


Australia

The parent company–subsidiary company relationship is defined by Part 1.2, Division 6, Section 46 of the Corporations Act 2001 (Cth), which states:
A
body corporate In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and being a part of a culturally established form of ...
(in this section called the first body) is a subsidiary of another body corporate if, and only if: :(a) the other body: ::(i) controls the composition of the first body's board; or ::(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a
general meeting A general assembly or general meeting is a meeting of all the members of an organization An organization, or organisation ( Commonwealth English; see spelling differences), is an entity – such as a company, an institution, or an assoc ...

general meeting
of the first body; or ::(iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or :(b) the first body is a subsidiary of a subsidiary of the other body.


Canada

Toronto-based lawyer Michael Finley has stated, "The emerging trend that has seen international plaintiffs permitted to proceed with claims against Canadian parent companies for the allegedly wrongful activity of their foreign subsidiaries means that the corporate veil is no longer a silver bullet to the heart of a plaintiff’s case."


Singapore

The parent subsidiary company relationship is defined by Part 1, Section 5, Subsection 1 of the Companies Act, which states:
5.—(1) For the purposes of this Act, a corporation shall, subject to subsection (3), be deemed to be a subsidiary of another corporation, if — :(a) that other corporation — ::(i) controls the composition of the board of directors of the first-mentioned corporation; or ::: ct 36 of 2014 wef 01/07/2015::(ii) controls more than half of the voting power of the first-mentioned corporation; or ::(iii) eleted by Act 36 of 2014 wef 01/07/2015:(b) the first-mentioned corporation is a subsidiary of any corporation which is that other corporation's subsidiary


United Kingdom

In the United Kingdom, it is generally held that an organisation holding a 'controlling stake' in a company (a holding of over 51% of the stock) is in effect the de facto parent company of the firm, having overriding material influence over the held company's operations, even if no formal full takeover has been enacted. Once a full takeover or purchase is enacted, the held company is seen to have ceased to operate as an independent entity but to have become a tending subsidiary of the purchasing company, which, in turn, becomes the parent company of the subsidiary. (A holding below 50% could be sufficient to give a parent company material influence if they are the largest individual shareholder or if they are placed in control of the running of the operation by non-operational shareholders.)


Company law

In the United Kingdom, the term "Holding Company" is defined by the
Companies Act 2006 The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom The Parliament of the United Kingdom is the of the , the and the . It alone possesses and thereby ultimate power over all other political bodies in the ...
at section 1159. It defines a Holding Company as a Company that holds a majority of the voting rights in another company, OR is a member of another company and has the right to appoint or remove a majority of its board of directors, OR is a member of another company and controls alone, pursuant to an agreement with other members, a majority of the voting rights in that company.


United States


Banking

After the
financial crisis of 2007–08 Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricatu ...
, many U.S. investment banks converted to holding companies. According to the
Federal Financial Institutions Examination Council The Federal Financial Institutions Examination Council (FFIEC) is a formal U.S. government interagency body composed of five banking regulators that is "empowered to prescribe uniform principles, standards, and report forms to promote uniformity i ...
's (FFIEC) website,
JPMorgan Chase JPMorgan Chase & Co. is an American Multinational corporation, multinational Investment banking, investment bank and financial services holding company headquartered in City of New York, New York City. JPMorgan Chase is Delaware General Corpor ...

JPMorgan Chase
,
Bank of America The Bank of America Corporation (simply referred to as Bank of America, often abbreviated as BofA or BoA) is an American multinational investment bank Investment is the dedication of an asset to attain an increase in value over a period o ...

Bank of America
,
Citigroup Citigroup Inc. or Citi (stylized File:Les Demoiselles d'Avignon.jpg, ''Les Demoiselles d'Avignon'' (1907), also by Picasso in a different style ("Picasso's African Period") four years later.In the visual arts, style is a "...distinctive mann ...

Citigroup
,
Wells Fargo Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California San Francisco (/Help:IPA/English, ˌsæn fɹənˈsɪskoʊ/; Spanish language, Spanish for "Fra ...

Wells Fargo
, and
Goldman Sachs The Goldman Sachs Group, Inc. () is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage Prime ...

Goldman Sachs
were the five largest bank holding companies in the finance sector, as of 31 December 2013, based on total assets.


Utilities

The
Public Utility Holding Company Act of 1935 In public relations Public relations (PR) is the practice of managing and disseminating information from an individual or an organization An organization, or organisation (English in the Commonwealth of Nations, Commonwealth Engli ...
in the United States caused many energy companies to divest their subsidiary businesses. Between 1938 and 1958 the number of holding companies declined from 216 to 18. An energy law passed in 2005 removed the 1935 requirements, and has led to mergers and holding company formation among power marketing and power brokering companies.


Broadcasting

In US
broadcasting Broadcasting is the distributionDistribution may refer to: Mathematics *Distribution (mathematics) Distributions, also known as Schwartz distributions or generalized functions, are objects that generalize the classical notion of functi ...

broadcasting
, many major
media conglomerate A media conglomerate, media group, or media institution is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mix ...
s have purchased smaller broadcasters outright, but have not changed the
broadcast license A broadcast license is a type of spectrum license granting the licensee permission to use a portion of the radio frequency Radio frequency (RF) is the oscillation rate of an Alternating_current, alternating electric current or voltage or of a ...
s to reflect this, resulting in stations that are (for example) still licensed to
Jacor Jacor Communications was a media corporation, existing between 1987 and 1999, which owned many radio station , Sweden , Norway Radio broadcasting is transmission of audio signal, audio (sound), sometimes with related metadata, by radio waves in ...
and
Citicasters The Taft Broadcasting Company (also known as Taft Television and Radio Company, Incorporated) was an American media conglomerate based in Cincinnati Cincinnati ( ) is a city in the U.S. state of Ohio and the county seat of Hamilton County, ...
, effectively making them such as subsidiary companies of their owner
iHeartMedia iHeartMedia, Inc., formerly CC Media Holdings, Inc., is an American mass media Mass media refers to a diverse array of media Media may refer to: Physical means Communication * Media (communication), tools used to deliver infor ...
. This is sometimes done on a per-
market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Market (1965 film), ''Market'' (1965 ...
basis. For example, in
Atlanta Atlanta () is the capital city, capital and List of municipalities in Georgia (U.S. state), most populous city of the U.S. state of Georgia (U.S. state), Georgia. With an estimated 2019 population of 506,811, it is also the List of United ...

Atlanta
both
WNNX WNNX (100.5 MHz The hertz (symbol: Hz) is the derived unit of frequency Frequency is the number of occurrences of a repeating event per unit of time. It is also referred to as temporal frequency, which emphasizes the contrast to spa ...
and later
WWWQ WWWQ (99.7 FM) – branded as Q99-7 – is a commercial Top 40/CHR radio station , Sweden , Norway Radio broadcasting is transmission of audio signal, audio (sound), sometimes with related metadata, by radio waves intended to reach a wide au ...
are licensed to "WNNX LiCo, Inc." (LiCo meaning "license company"), both owned by
Susquehanna Radio The Susquehanna Radio Corporation was a media corporation which operated from 1941 to 2006 that was headquartered in York, Pennsylvania. The company was a unit of Susquehanna Pfaltzgraff, a Conglomerate (company), conglomerate more widely known for ...
(which was later sold to
Cumulus Media Cumulus Media, Inc. is an American broadcasting company and is the third largest owner and operator of AM and FM radio stations in the United States behind Audacy and iHeartMedia, Inc. As of June 2019, Cumulus lists ownership of 428 stations ...
). In determining
cap A cap is a kind of soft and flat headgear, usually with a visor. Caps have crowns that fit very close to the head. They made their first appearance as early as 3,200BC. Caps typically have a visor, or no brim at all. They are popular in casual and ...

cap
s to prevent excessive
concentration of media ownership Concentration of media ownership (also known as media consolidation or media convergence) is a process whereby progressively fewer individuals or organizations control increasing shares of the mass media Mass media refers to a diverse ...
, all of these are attributed to the parent company, as are leased stations, as a matter of
broadcast regulation Broadcasting is the distribution (business), distribution of sound, audio or video content to a dispersed audience via any electronic medium (communication), mass communications medium, but typically one using the electromagnetic spectrum (radio ...
.


Personal holding company

In the United States, a personal holding company is defined in section 542 of the
Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large The ''United States Sta ...

Internal Revenue Code
. A corporation is a personal holding company if both of the following requirements are met: * Gross income test: At least 60% of the corporation's adjusted ordinary gross income is from dividends, interest, rent, and royalties. * Stock ownership test: More than 50% in value of the corporation's outstanding stock is owned by five or fewer individuals.


Parent company

A parent company is a
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common pu ...

company
that owns 51% or more voting stock in another firm (or
subsidiary A subsidiary, subsidiary company or daughter company is a company (law), company owned or controlled by another company, which is called the parent company or holding company. Two subsidiaries that belong to the same parent company are called sis ...
) to control management and operations by influencing or electing its
board of directors A board of directors is a group of people who jointly supervise the activities of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, W ...
. The second company is deemed to be a ''subsidiary of the parent company. The definition of a parent company differs from
jurisdiction Jurisdiction (from Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communication (from Latin ''communicare'', meaning "to share" or "to be i ...
to jurisdiction, with the definition'' normally being defined by way of laws dealing with 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 a "
wholly owned subsidiary A subsidiary, subsidiary company or daughter company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture o ...
".


See also

*
Berkshire Hathaway Berkshire Hathaway () is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational ...

Berkshire Hathaway
*
Chaebol A ''chaebol'' (, ; ) is a large industrial conglomerate that is run and controlled by a person or family in South Korea. A chaebol often consists of many diversified affiliates, controlled by a person or group of persons whose power over the ...
*
Conglomerate Conglomerate or conglomeration may refer to: * Conglomerate (company) * Conglomerate (geology) * Conglomerate (mathematics) In popular culture: * The Conglomerate (American group), a production crew and musical group founded by Busta Rhymes ** Con ...
*
Conglomerate discountConglomerate discount is an economic concept describing a situation when the stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims ...
*
Corporate group A corporate group or group of companies is a collection of parent and subsidiary corporations A corporation is an organization—usually a group of people or a company A company, abbreviated as co., is a legal entity In law, a l ...
*
Investment company An investment company is a financial institution principally engaged in investing in security (finance), securities. These companies in the United States are regulated by the U.S. Securities and Exchange Commission and must be registered under the ...
*
Keiretsu A is a set of companies A company, abbreviated as co., is a legal entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, conscio ...

Keiretsu
*
List of holding companies Under the United States Bank Holding Company Act, financial and bank holding companies are regulated by the US Federal Reserve. Companies whose elections to be treated as financial holding companies are effective include: 0 - 9 *1ST UNITED BANCOR ...
*
Patent holding company NPOV disputes from March 2021 A patent is a Title (property), title that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of years in exchange for publishing an sufficiency of di ...


References


External links

*
Emergence of Electrical Utilities in America
at Smithsonian Institution's
National Museum of American History The National Museum of American History: Kenneth E. Behring Center collects, preserves, and displays the heritage of the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or Ame ...

National Museum of American History
{{DEFAULTSORT:Holding Company Business models Business terms
Legal entitiesThis category contains articles related to juristic or natural person In jurisprudence Jurisprudence, or legal theory, is the theoretical study of law. Scholars of jurisprudence seek to explain the nature of law in its most general form and ...
Types of business entity