A holding company is a type of business entity that exists primarily to own and control other companies, either through the ownership of their stocks or equity interests.
A holding company does not engage in day-to-day operations, production, or the delivery of services. Instead, their activities primarily involve strategic planning, decision-making, and oversight of their subsidiaries.
Holding companies are often used as a strategy for diversification and risk management. By owning a portfolio of subsidiaries across different industries or sectors, a holding company spreads its risk.
Subsidiary companies typically retain their legal and financial independence even though they are owned by a holding company. This separation helps protect the holding company from the liabilities and risks of its subsidiaries.
Holding companies can sometimes achieve tax advantages through various legal and financial structures. They may benefit from tax incentives, reduced tax liabilities on intercompany transactions, or lower capital gains taxes.
The holding company’s board of directors and executive team are responsible for making strategic decisions that affect the entire corporate group. This includes decisions about mergers, acquisitions, divestitures, and capital allocation.
Imagine ABC Holdings Inc., a holding company, which owns several subsidiary companies operating in different industries:
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