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.