Business Glossary

corporation owning enough voting stock in another company to control its policies and management. Advantages of holding companies include: (1) the ability to control sizable operations with fractional ownership; (2) the isolation and diversification of risks through subsidiaries; and (3) the fact that approval of stock purchases by the stockholders of the acquired company is not required. Disadvantages of holding companies include: (1) partial multiple taxation when less than 80% of a subsidiary is owned; (2) the ease of enforced dissolution by the U.S. Department of Justice; and (3) the risks of negative leverage effects in excessive pyramiding.

corporation that owns enough voting stock in another corporation to influence its board of directors and therefore to control its policies and management. Aholding company need not own a majority of the shares of its subsidiaries or be engaged in similar activities. However, to gain the benefits of tax consolidation, which include tax-free dividends to the parent and the ability to share operating losses, the holding company must own 80% or more of the subsidiary's voting stock.

Among the advantages of a holding company over a merger as an approach to expansion are the ability to control sizeable operations with fractional ownership and commensurately small investment; the somewhat theoretical ability to take risks through subsidiaries with liability limited to the subsidiary corporation; and the ability to expand through unobtrusive purchases of stock, in contrast to having to obtain the approval of another company's shareholders.

Among the disadvantages of a holding company are partial multiple taxation when less than 80% of a subsidiary is owned, plus other special state and local taxes; the risk of forced divestiture (it is easier to force dissolution of a holding company than to separate merged operations); and the risks of negative leverage effects in excessive pyramiding .

The following types of holding companies are defined in special ways and subject to particular legislation: public utility holding company (see public utility holding company act ), bank holding company , financial holding company , railroad holding company, and air transport holding company.

See also Financial Holding Company (FHC) , unitary thrift , bank holding company

corporation organized for the purpose of owning stock in and managing one or more corporations. Holding companies traditionally own many corporations in widely different business areas.

one that owns or controls another company(ies).

Example: Banks and public utilities are often owned or controlled by a holding company. Sometimes this arrangement allows more latitude for business practices than the operating company can achieve alone.