What is a Holding Company?

A holding company is a company that exists solely for owning assets or voting stock in other companies. This company does not engage in any production of goods and services or business operations but only focuses on owning assets of other companies to form a corporate group. A holding company is referred to as a parent company, this company can be a limited partnership or limited liability company. It owns a significant portion of stocks or assets of other companies and has controlling rights over them. A holding company often performs oversight functions on all companies it controls.

Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP

How is a Holding Company Used?

Rather than engaging in business activities, a holding company owns the stock or assets or other companies, thereby controls them. When a company gains control over one or more companies with the aim of establishing a corporate group, it is a holding company. A holding company has no business operations, neither does it produce goods and services, but it can own properties, stocks, patents, assets, and trademarks. The companies owned by a holding company are called subsidiaries. If a holding company owns 100% of a company's shares, such a company is a wholly-owned subsidiary. A holding company does not run the business operations of the companies it owns. It hires managers who are responsible for business operations. Holding companies oversee management decisions made by the subsidiaries and influence policies that drive growth. Ultimately, the holding company has the responsibility to protect the subsidiaries, it also supports the activities of the companies with its resources. Berkshire Hathaway is a popular holding company that owns assets in over a hundred companies, both public and private companies. Holding companies also help subsidiaries obtain financing with lower interests and also lower the cost of operating capital of the subsidiaries.