A Holding Company?

 What is a Holding Company?

Definition of a "Holding Company":

As per Merriam Webster Dictionary, a holding company is a company whose main business is owning  more than half of another company's (subsidiary) stock. As per Dictionary.com, it's a company that controls other companies through stock ownership but that usually does not engage directly in their productive operations . So, we can understand that the holding company is a "corporation or limited liability company (LLC) which doesn't manufacture or sell any products or  services or conduct any business operations. Holding companies only hold the controlling stock in other companies (As per the definition from investopedia).

How does the Holding Company Operate?

The subsidiary companies have their own management who run the business directly while management of the holding company monitors and foresees the policies and measure the performance of the subsidiary companies' management. Accordingly, the holding company (LLC) management are superior to the subsidiary management.

Why does a holding company exists?

Tw reasons: First, they use the benefits of the subsidiaries indirectly. You may buy stocks in a company not knowing that you are investing in another company.

Second reason - which is the more important -  if the subsidiary company goes bankrupt, there will be no liabilities on the holding company and investors/creditors cannot legally pursue the holding company for remuneration. This helps in protecting the companies' assets and reputation, plus lowering the debt financing costs.

For these reasons, the idea of a holding company exists not only in large business, but you will find it in small business as well. We can also know that it's a complex process and doesn't suit all types of ventures.