Aholding company is acompany whose primary business is holding acontrolling interest in thesecurities of other companies.[1] A holding company usually does not produce goods or services itself. Its purpose is to ownstock of other companies to create acorporate group.
Holding companies also conduct trade and other business activities themselves. Holding companies reducerisk for theshareholders, and can permit the ownership and control of a number of different companies. They can besubsidiaries in atiered structure.
In the United States, 80% of stock, in voting and value, must be owned beforetax consolidation benefits such astax-freedividends can be claimed.[2] That is, if Company A owns 80% or more of the stock of Company B, Company A will not paytaxes 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.
In some jurisdictions around the world, holding companies are calledparent companies.The New York Times uses the termparent holding company.[3] Sometimes, a company intended to be a pure holding company identifies itself as such by adding "Holding" or "Holdings" to its name.[4][5]
This articleis missing information about holding companies from the Netherlands. Please expand the article to include this information. Further details may exist on thetalk page.(March 2023)
The parent company–subsidiary company relationship is defined by Part 1.2, Division 6, Section 46 of theCorporations Act 2001 (Cth), which states:[6]
Abody 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 ageneral 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.
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."[7]
In the United Kingdom, 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.)[9][10]
In the United Kingdom, the termholding company is defined by theCompanies Act 2006 at section 1159.[11] 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.
ThePublic Utility Holding Company Act of 1935 caused many energy companies to divest their subsidiary businesses. Between 1938 and 1958 the number of holding companies declined from 216 to 18.[13]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.[14]
In the United States, a personal holding company is defined in section 542 of theInternal Revenue Code. A corporation is a personal holding company if both of the following requirements are met:[15]
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.
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.[16] A parent company could simply be a company that wholly owns another company, which is then known as a "wholly owned subsidiary".
