What is a Holding Company?
A holding company is an organization that have power of controlling
the other company. Holding company gain their power by owning 100% or more than
half of the shares or assets of the company. The company that is under the
control of the holding company can be classified as subsidiaries company while
holding company also known as a parent company. Most of the holding company
does not manufacture, selling or conducting any business operation. This
include not running any day-to-day operation of their subsidiaries company.
Despite of not conducting any business operation, holding company
can own property such as real estate, stocks, trademarks, patents and other
assets. The roles of the company are to oversee the operation of the
subsidiaries. Other than having the power to participate in the company
decision making process, they can also elect or remove the director or manager
of the subsidiaries company. The directors will protect their interest in the
subsidiary company they owned. They can also decide to merge or dissolve the
company.
According to Section 4 of the Companies Act 2016 (CA 2016), the
companies will be considered as a holding company if they have control of the
composition of the board of directors, have more than half of the voting power
or if they hold more than half of the issued share capital.
Benefit of the Holding Company
The holding company have a lot of benefit that come with it such as:
1)
Protection of the Liability
Holding company being protected from any losses incurred by the
subsidiaries. In the other word, if the subsidiaries have to gone through a
liquidation process, its creditor cannot claim any of their losses from the
holding company.
Not only that, as the holding company can own property, intellectual
property and equipment of the company, it can become a shield for the
subsidiaries in protecting their property if they cannot perform well or become
insolvent.
2)
Lower Financing Cost
Holding company that have a stable financial strength can easily
obtain loans for lower interest rates compared to its subsidiaries companies
itself. This is beneficial for the subsidiaries in overcoming the financial
crisis or any emergency claim as the holding company can have a loan and
distribute the funds to them.
Other than that, a holding company can assist to reduce the amount
of tax that the group need to pay as whole. This is because when the holding
company files its consolidated tax return, the losses incurred by subsidiaries
can be offset against the other subsidiaries companies with the same holding
company.
3)
Day to Day Management is not
required
Holding company can own variety of business regardless of its
industries that they are in. it is because of the holding company does not have
to involve in the day-to-day management as it will be full manage by the
subsidiaries for them. Hence, although
they do not have wide range of knowledge in the industries, they can still
become their parent company.
Reference Link
1)
https://legalvision.com.au/what-are-the-advantages-of-a-holding-company/
2)
https://www.investopedia.com/terms/h/holdingcompany.asp
5)
https://smallbusiness.chron.com/advantages-holding-company-24217.html