Forex Trading

What is a Holding Company? Overview, Definition, and Examples

An important decision is whether to select an individual — like an employee, owner or lawyer — or a professional registered agent. A professional registered agent is a service company that provides the registered agent to many business entities and has expertise in doing so. Procter & Gamble, to give a real-world illustration, is effectively a holding company because it has different subsidiaries for different purposes. Other separate subsidiaries own the manufacturing plants that make Tide, and those manufacturers pay the brand-owning company a licensing royalty.

As a result, if rivals try to enter the market, they may be prevented from doing so because the owner is protected by the holding company’s resources. Because of their complexity and difficulty in managing, it is not a good fit for smaller companies. Holding companies are beneficial for businesses that want to have greater stability and protection from risks, as well as to generate revenue from a broader range of assets. In short, they include greater asset protection, greater privacy, tax advantages, and better investment attractiveness.

One of the most common ways for large conglomerates to control their subsidiaries is through holding companies. Manufacturing and retail are the two types of businesses that most holding companies do not own. A significant amount of their influence is usually derived from their ownership of businesses they own. A holding company is a company that owns other companies’ outstanding stock. A holding company usually does not produce goods or services itself; rather, its purpose is to own shares of other companies to form a corporate group. A holding company can also be used to control a company without owning a majority of its shares.

  1. The companies that are owned or controlled by a corporation holding company or an LLC holding company are called its subsidiaries.
  2. Holding companies are used across a range of industries to structure both multinational and local corporations.
  3. Beyond the benefits of forming a holding company, there are also potential downsides.
  4. If you had simply created a single company with multiple divisions or projects, an investor would take an interest in your whole business empire instead of just a single project that is set up as its own business.
  5. One of the most effective is to divide the business into several business entities all owned and controlled by a single holding company.
  6. It is critical to understand the meaning of a Holding Company as it affects the legal treatment of such a company.

While it owns a significant portion of shares in other businesses, it also engages in its own set of business activities. Holding companies may also own real estate, commodities, intellectual property, or a variety of other assets. The holding company takes a ‘hands-off’ approach, as each subsidiary has its own CEO. This helps facilitate an environment certifications for java developers of independence in addition to the corporation’s wider shared goals. Berkshire Hathaway is another well-known holding company that includes companies as diverse as Coca-Cola, American Express, BNSF Railway, Dairy Queen, Acme Brick Company, and See’s Candies. JP Morgan Chase is one of the largest holding companies in the financial sector.

The specific tax rates for different types of income will vary depending on the province in which the holding company is incorporated. Finally, holding companies can sell off stocks, other investments, equipment, and other assets to raise capital. The final step is to write the documents of incorporation and submit a business application. You can form your business in any state, which provides the flexibility to file a business application in a state where tax laws are favorable for your holding company operations. For example, in Atlanta 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).

Basic steps for forming and maintaining a C Corporation

Business owners structure their holdings in numerous ways to reduce risks, realize tax benefits, or diversify their portfolios. One example is a holding company, sometimes referred to as an umbrella or parent company. A holding company is a company whose primary business is holding a controlling interest in the securities of other companies.[1] A holding company usually does not produce goods or services itself. The name of each parent company and subsidiary company must meet the requirements of the governing statute.

Tax Benefits Of A Holding Company

The financial prosperity would allow credit to be granted at low-interest rates to finance subsidiaries. The hired management for a subsidiary, decided by the parent company, is the business operators who need to have relevant experience in the industry. Holding unrelated businesses could be to expand their market, or it may be a good investment opportunity in an emerging market with a visionary appeal to the holding company. Therefore, a holding company would be a good solution where the raised capital or subsidiary revenue can be redistributed to new business ventures.


For investors and creditors, it may be difficult to find an accurate picture of the overall financial health of the holding company. It is also possible for unethical directors to hide their losses by moving debt among their subsidiaries. Each business is assigned an employer identification number (EIN) from the IRS after receiving your certificate of incorporation. While all corporations require an EIN, certain single-member limited liability companies may be exempt.

Real Holding and Subsidiary Company Examples

Buffett’s Berkshire Hathaway owns assets in over 100 companies, including Dairy Queen, Clayton Homes, Duracell, GEICO, Fruit of the Loom, RC Wiley Home Furnishings, and Marmon Group, among others. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. Holding companies, with their broader view of the conglomerate’s various businesses, can efficiently allocate capital where it’s most needed or where it will provide the highest return. This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation.

The budget will be set before the start of the fiscal year and will state what is needed for investing, purchasing, and other budgetary concerns. By using a budget, this will allow the holding company to see which subsidiary is performing as expected. If there is excess cash, the holding company will decide whether they will keep it in the subsidiary or move it. Any assets of a subsidiary can be owned by the holding company, then leased to the subsidiary.

What are the advantages of the holding company?

Doing so has several advantages, including helping businesses mitigate the risk of losing assets to creditors. The holding company’s management is also responsible for deciding where to invest its money. A pure holding company can obtain the funds to make its investments by selling equity interests in itself or its subsidiaries or by borrowing. It can also earn revenue from payments it receives from its subsidiaries in the form of dividends, distributions, interest payments, rents, and payments for back-office functions it may provide.

By holding equity in various subsidiaries, a holding company can mitigate losses through its diversified portfolio and capitalize on tax efficiencies. A holding company is a strategic corporate structure with distinct advantages and inherent risks. When a subsidiary company is entirely owned by a holding company, it is said to be wholly owned. Furthermore, the loss of one subsidiary does not impact the other assets held by the holding company, so the remainder of its sources of income will still be safe.

For example, a holding company that controls its subsidiaries but doesn’t have to own all of the shares or the membership interests – just the majority. The parent company could have an internal board of management directors who select suitable candidates for a business. Businesses under the parent company or “umbrella” company, other terms for holding company, are known as its subsidiaries.

In many cases, subsidiaries are their own distinct brands, owned by an overarching holding company. Holding companies are an integral part of corporate groups across the business world. This guide will explain the holding company definition, the advantages and disadvantages, and how to set one up. Yes, holding companies are subject to taxes on income, capital gains, and other sources of revenue.

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