A holding company is an organization that is formed to acquire the continuing amount of shares or stocks of other companies and thereby controls their poesies and operations. It was created to overcome the restrictions imposed by the Anti-trust legislation. It is an organization that is formed mainly to acquire the controlling amount of shares of stock of other companies and to controls their policy and operation.
Types of Holding Company
The holding companies can be of different types. These are described below:
- Parent Holding Company:
It means the company when an existing company organizes subsidiary companies and holds a controlling amount of shares. For e.g., Tata Tea has acquired controlling stake in Tetley, a UK tea company. In this case, Tata Tea is the parent holding company.
- Operating or mixed holding company:
Operating or mixed holding company operates at least one plant and holds shares of subsidiary companies. It is a holding company that runs its own business and also controls the business of its subsidiaries.
- Consolidated holding company:
When this type of company is formed by consolidating existing companies then it is known as the consolidated holding company. Put simply, it’s a type of holding the company that is already a subsidiary of another.
- Proprietary holding company:
A company that holds the entire stock issued by its subsidiaries.
A new company is formed to take over the share of an existing company.
- Primary holding company:
This is one that stands at the head of the combined organization with no other organization above them. For example, Unilever Ltd., setup HLL (Hindustan Lever Limited) as its subsidiary. Unilever Ltd., which is the holding company is not a subsidiary of any other company and is, therefore, a primary holding company
- Pure holding company:
This is one that does not operate any plant but simply holds the controlling amount of share of other operating companies. A company that holds majority shares of another company. For e.g. in the Tata group, Tata Sons Ltd. was established for uniting and controlling the various subsidiaries.
- Finance Holding Company:
This is formed primarily to earn profits by financing the operations of other companies through promotion. It does not control the affairs of other companies. This type of company incidentally may exercise control over the finance of the company. It earns profits by financing the operations of other firms.
- Intermediary holding company:
This is one which acts as an agency through which a primary company controls subsidiaries. This is a holding company of a subsidiary but is itself controlled by another holding company. This company mainly exists for the purpose of controlling subsidiary companies. Thus some view such a company as control this company. And they are of the opinion that this company is platy of rob or an intermediary organization.
- Investment holding company:
It does not manage the affairs of other companies. It invests in securities of a number of companies. Its members obtain the advantage of diversified investment.
From the discussion, we can say that a holding company may be a different type as its formation, objectives, and nature. Mainly in developing countries, these types of holding companies are seen.