What Is a Holding Company?

What Is a Holding Company?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A holding company is a type of business organization that exclusively possesses assets but does not perform any operations like sales, production, or other services. These assets may involve shares of stock in other corporations, limited liability companies, limited partnerships, private equity funds, hedge funds, public stocks, bonds, real estate, songs, brand names, patents, trademarks, copyrights, and virtually anything else that has value.

Essentially, a holding company is formed for the specific purpose of controlling other companies, whether they be other corporations, limited liability companies, or other holding companies. Therefore, a holding company doesn’t produce goods or services itself. Its sole purpose is to control other companies and to benefit from their profits while limiting financial risks and liabilities.

Related Questions

1. How does a holding company make money?

As a controlling entity, a holding company makes money from the dividends it receives from its subsidiaries or from the sale of its assets. It also profits from any increase in the value of assets it owns.

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2. What is the difference between a parent company and a holding company?

A parent company is usually involved in the same line of business as its subsidiaries and actively manages them. In contrast, a holding company’s main task is to own and control its subsidiaries without being involved in their operations.

3. Can a holding company sell its assets?

Yes, a holding company can sell its assets. However, this could lead to a loss of control over the subsidiary if the majority of shares are sold.

4. Why do businesses form holding companies?

Businesses form holding companies to reduce risk, gain control of other companies, manage diverse types of investments, and to reap tax advantages.

5. Do holding companies have employees?

In most cases, a holding company doesn’t have employees of its own. It controls its assets, properties, and companies from the top level, while operations are carried out by the employees of the individual companies under the holding company.