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    Shubham Mittal
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    A holding company is a company that owns shares of other companies. It does not produce goods or services itself but owns shares to control other companies. Holding companies allow for risk reduction and centralized control of multiple companies. They provide advantages like limiting risk through subsidiaries and benefiting from subsidiaries' reputations. However, they can also lead to monopoly problems and costly centralized management. In India, a company that holds over 50% shares of another becomes its holding company.

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    A holding company is a company that owns shares of other companies. It does not produce goods or services itself but owns shares to control other companies. Holding companies allow for risk reduction and centralized control of multiple companies. They provide advantages like limiting risk through subsidiaries and benefiting from subsidiaries' reputations. However, they can also lead to monopoly problems and costly centralized management. In India, a company that holds over 50% shares of another becomes its holding company.

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    89 views20 pages

    Holding Companies

    Uploaded by

    Shubham Mittal
    A holding company is a company that owns shares of other companies. It does not produce goods or services itself but owns shares to control other companies. Holding companies allow for risk reduction and centralized control of multiple companies. They provide advantages like limiting risk through subsidiaries and benefiting from subsidiaries' reputations. However, they can also lead to monopoly problems and costly centralized management. In India, a company that holds over 50% shares of another becomes its holding company.

    Copyright:

    © All Rights Reserved
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    of 20

    HOLDING

    COMPANIES
    MEANING

    A holding company is company or firm that owns other companies outstanding stock.

    It usually refers to the company which do not produce goods or services itself, rather its only
    purpose is to owning shares of other companies.

    Holding company allow the reduction of the risk for the owners and can allow the ownership
    and control of a number of different companies.
    Meaning

     Holding company is a company which has control over the other companies by either of
    the following:

    1. Control the composition of its board of directors.

    2. hold more than half in nominal value of its equity share capital.

    3. It is the holding company for its subsidiary’s subsidiary co.


    ADVANTAGES
     Holding companies can take risks through subsidiaries, and limit this risk to subsidiary alone
    rather than placing the parent company on the line.

     The holding company also benefit from the subsidiary’s goodwill and reputation, while
    being sheltered by risk faced by subsidiary in the case of legal issues, tax liabilities and
    lawsuits.

     When raising a capital a larger holding company has more diversity of asset than an
    individual company, which makes raising capital easier.
    ADVANTAGES

     If the holding company owns 80% of voting stock of another company ,the holding
    company can qualify for tax free dividends.
    DISADVANTAGE

     Problem of monopoly: A holding company tries to create monopoly over the market.
    Monopoly is always against the public interest. Its fixes a higher prices and consumers
    suffers a loss.

     Costly management: a holding company spends a lot of money on officers and offices. All
    the units are managed by central authority. So its costly to maintain the proper control on
    large numbers of subsidiary companies.
    Disadvantage

     Minority intrest is ignored: the interest of minority shareholders are ignored and the
    members of holding company are dispose of every resolution for their own interest.

     Misuse of funds: the directors of the company enjoys unlimited power and they take
    undue advantages.
    Holding companies in india
    Subsidiary Company

     If A holds more than 50% shares in company B.

    Then A is holding company and B is a subsidiary company.

    Example: coal India is a holding company.


    bharat coking ltd., Mahanadi coal fields ltd are its subsidiary
    companies.
    Advantages

     The holding company provides the subsidiary company with buying power, research and
    development funds, marketing money, employees, technical expertise and other features
    which otherwise it could not afford or accomplish alone.
     The parent company can provide the monetary means and capability to jump start new
    companies and products.
     Ability to offset profits and losses of one part of a business with another
    Disadvantages

     A major disadvantage of being a subsidiary of a large organization is the limited freedom


    in management
     Decision making can become time consuming as issues often must go through various
    chains of command within the parent bureaucracy before any action can be taken
     Legal paperwork involved with creating a subsidiary can be lengthy and expensive
    Subsidiary companies in India
    Companies bearing Tata Label
    Subsidiaries not bearing Tata Label
    Holding vs. Subsidiary

     When a company acquires majority shares in another company, it becomes a holding


    company and the company whose share it acquires becomes a subsidiary company.
     The relationship between the holding and subsidiary company is that of a parent and
    child.
     Many companies are formed with the sole intent of becoming holding companies.
    Consolidation of P&L A/c

     The consolidated profit and loss A/c of holding companies and its subsidiary companies
    are prepared to show the operating activities of the company.

     The items appearing in the profit and loss a/c of both the individual companies are
    aggregated in the consolidated profit and loss a/c.
    Continue.

    While consolidating following adjustment has to be made :

     Prepare the profit and loss a/c. amounts relating to inter company transaction entered in
    the adjustment column and are subtracted.

     All inter company operating transactions such as purchase and sales of goods, interest on
    loans among the companies are eliminated.

     All inter company profit are adjusted.


    Continue

     Dividend received by the holding company from the subsidiary company should be
    eliminated.

     The balance in holding company column will represent the total profit and loss made by
    the company as a whole.
    Consolidation of the balance sheet

     It is where the balance sheet of the holding company and the subsidiary company is
    combined.

     Few points kept in mind while consolidating:

    1. share of holding company and share of minority.

    2. date of the balance sheet of the holding company and of the


    subsidiary company must be same.
    Cost control

     Holding company acquires more than 50% of the shares which may be either premium or
    at discount price.

     If the amount paid by the holding company for the shares of the subsidiary company is
    more than its proportionate share in the asset of the subsidiary company, the difference is
    considered as goodwill.
    Thank You

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