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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 that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concept ...
. 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 about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environme ...
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'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid d ...
'' also refers to the term as ''parent holding company.'' Holding companies are also created to hold assets such as
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, ...
or trade secrets, that are protected from the operating 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 law (common law), civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used in re ...
. In the 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 person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
consolidation benefits such as tax-free
dividend A dividend is a distribution of Profit (accounting), profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed ...
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 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 or shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another cor ...
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 Parliament, Act of the Parliament of the United Kingdom which forms the primary source of UK company law. The Act was brought into force in stages, with the final provision being commenced on 1 Octobe ...
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 and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumption (economics) ...
, many U.S. investment banks converted to holding companies. According to the Federal Financial Institutions Examination Council'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 and Delaware General Corporation Law, inco ...
,
Bank of America The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North ...
,
Citigroup Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking ...
,
Wells Fargo Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, San Francisco, California; operational headquarters in Manhattan; and managerial offices throughout the United St ...
, and
Goldman Sachs Goldman Sachs () is an American multinational Investment banking, investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Wars ...
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 The Public Utility Holding Company Act of 1935 (PUHCA), also known as the Wheeler-Rayburn Act, was a United States Code, US federal law giving the Securities and Exchange Commission authority to regulate, license, and break up electric utility Hold ...
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 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 ...
, many major
media conglomerate A media conglomerate, media group, or media institution is a company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Comp ...
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 spectrum, spectrum in a given geographical area for broadcasting purposes. The licenses generally include restrictio ...
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 stations in the United States. In 1998, Jacor was purchased by Clear Channel Communications, now iHeartMedia, for $2.8 billion. Jacor Communicat ...
and
Citicasters The Taft Broadcasting Company (also known as Taft Television and Radio Company, Incorporated) was an American media conglomerate based in Cincinnati, Ohio. The company was rooted in the Taft family, family of William Howard Taft, the 27th Presid ...
, effectively making them such as subsidiary companies of their owner
iHeartMedia iHeartMedia, Inc., formerly CC Media Holdings, Inc., is an American mass media corporation headquartered in San Antonio, Texas. It is the holding company of iHeartCommunications, Inc. (formerly Clear Channel Communications, Inc.), a company fou ...
. This is sometimes done on a per- market basis. For example, in
Atlanta Atlanta ( ) is the capital and most populous city of the U.S. state of Georgia. It is the seat of Fulton County, the most populous county in Georgia, but its territory falls in both Fulton and DeKalb counties. With a population of 498, ...
both WNNX and later WWWQ are licensed to "WNNX LiCo, Inc." (LiCo meaning "license company"), both owned by Susquehanna Radio (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 broadcasting, AM and FM broadcasting, FM radio stations in the United States behind Audacy, Inc., Audacy and iHeartMedia. As of June 2019, ...
). In determining caps 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. Contemporary research demonstrates in ...
, all of these are attributed to the parent company, as are leased stations, as a matter of broadcast regulation.


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, and separately as Title 26 ...
. 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 entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
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 or more subsidiaries that either belong to the same parent company ...
'') to control management and operations by influencing or electing its
board of directors A board of directors (commonly referred simply as the board) is an Committee#Executive committee, executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such a ...
. The definition of a parent company differs from
jurisdiction Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels. Jur ...
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".


See also

*
Berkshire Hathaway Berkshire Hathaway Inc. () is an American Multinational corporation, multinational conglomerate (company), conglomerate holding company headquartered in Omaha, Nebraska, United States. Its main business and source of capital is insurance, from ...
*
Chaebol A chaebol (, ; ) is a large industrial South Korea, South Korean conglomerate run and controlled by an individual or family. A chaebol often consists of multiple diversified affiliates, controlled by a person or group whose power over the gro ...
* Conglomerate * Conglomerate discount *
Corporate group A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concept ...
* Investment company *
Keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The '' ...
* List of holding companies * Patent holding company


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 in the areas of social, political, cultural, scientific, and military history. Among the items on display is t ...
{{DEFAULTSORT:Holding Company Business models Business terms Legal entities Types of business entity