holding company

A company controlling partial or complete interest in another company or other companies.

A parent corporation that owns enough voting stock in another corporation to control its board of directors (and, therefore, controls its policies and management).

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A holding company must own at least 80% of voting stock to get tax consolidation benefits, such as tax-free dividends.

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Corporation that owns enough voting stock in another corporation to influence its board of directors and therefore to control its policies and management. A holding company need not own a majority of the shares of its subsidiaries or be engaged in similar activities. However, to gain the benefits of tax consolidation, which include tax-free dividends to the parent and the ability to share operating losses, the holding company must own 80% or more of the subsidiary's voting stock.

Among the advantages of a holding company over a Merger as an approach to expansion are the ability to control sizeable operations with fractional ownership and commensurately small investment; the somewhat theoretical ability to take risks through subsidiaries with liability limited to the subsidiary corporation; and the ability to expand through unobtrusive purchases of stock, in contrast to having to obtain the approval of another company's shareholders.

Among the disadvantages of a holding company are partial multiple taxation when less than 80% of a subsidiary is owned, plus other special state and local taxes; the risk of forced Divestiture (it is easier to force dissolution of a holding company than to separate merged operations); and the risks of negative leverage effects in excessive Pyramiding.

The following types of holding companies are defined in special ways and subject to particular legislation: public utility holding company (see Public Utility Holding Company Act), Bank Holding Company , Financial Holding Company, railroad holding company, and air transport holding company.

For more information on holding company, visit Britannica.com.

A holding company is characterized by its ownership of securities (generally common stock) of other companies for the purpose of influencing the management of those subsidiary companies, rather than for investment or other purposes.

Some holding companies, often called "pure" holding companies, confine their operations to owning and managing other firms, whereas other holding companies are themselves operating companies. This distinction was formerly of greater significance than it is now, because—until the passage of the first limiting legislation in the 1930s—pure holding companies that controlled operating companies in several regulated industries, including banking and public utilities, were free of state and federal regulations imposed on operating companies. Through acquisition of separate firms, holding companies could enter activities and geographical areas barred to regulated operating companies. Many loopholes in regulations governing these industries were closed by the Public Utility Holding Company Act of 1935 and the Bank Holding Company Act of 1956.

The holding company emerged as a common form of business organization around 1900, some decades after its first use in railroads (1853) and communications (1832). The earliest holding companies had charters granted by special acts of state legislature that explicitly permitted them to control stock of other corporations; the courts in most states usually ruled that this power had to be granted by explicit legislative enactment. However, a few early general incorporation acts did provide for charters granting such powers. Nevertheless, the widespread use of holding companies followed, especially upon liberalization of general incorporation acts by New Jersey and several other states starting in 1889. This development suggests that the wide use of charters in New Jersey and, later, in Delaware stemmed from other factors, including favorable tax treatment and the financial, technological, and marketing demands and opportunities of large-scale business.

The holding company, depending upon circumstances, offers financial, administrative, and legal advantages over other forms of business organization. It usually has better access to securities markets than do the member operating companies individually, making it easier to secure the capital necessary to conduct large-scale operations. It permits a combination of firms with control of a smaller portion of voting stock than is necessary for a merger of those firms. (One objection to the holding company, however, is the sometimes meager protection it provides to the rights of minority stockholders.) It affords a convenient method of centralizing control of the policies of different businesses while leaving control of their operations decentralized. Pyramiding—the use of a number of holding companies placed on top of each other—especially when combined with a heavy reliance on borrowed funds at each level, permits business organizers to acquire control of a large volume of assets with relatively little investment. Separate incorporation of properties located in different states or engaged in different activities often simplifies the holding company's accounting, taxation, and legal problems and may free the holding company of legal restrictions to which it might otherwise be subject.

As business organizers moved to exploit these advantages toward the turn of the twentieth century, the holding company device became the dominant form of large-scale business organization. Long used in the railroad industry, it was extended there, notably with formation of the Northern Securities Company in 1901. The formation, also in 1901, of United States Steel—then called the "world's greatest corporation"—signaled the adoption of holding company organizations in mining and manufacturing. Somewhat later, extensive holding-company systems were formed in banking and finance and in public utilities. Many of the latter were noted for their extensive pyramiding and their combination of diverse, widely scattered holdings.

Under attack from the beginning, holding companies have remained controversial and the subject of continuing demands for public control. Those formed around the turn of the twentieth century were enveloped from birth in the antitrust agitation of the period. The public utility holding companies of the 1920s were likewise attacked as monopolistic. The attack on them, which gained intensity and focus with the failure of a number of the systems in the early 1930s, led to the passage in 1935 of the Public Utility Holding Company Act. Corporations controlling two or more banks were brought under federal control in 1956. Attention in the 1960s and early 1970s shifted to the conglomerate (the highly diversified holding company), and to the financial congeneric (the bank-centered one-bank holding company, which limited its operations to banking and other closely related financial services). Both were subjected to a measure of federal control in the early 1970s: the Justice Department initiated a number of antitrust suits to block some acquisitions of the former, and Congress, in 1970, amended the Bank Holding Company Act of 1956 to circumscribe activities of the latter.

In the late twentieth century, federal regulators continued to scrutinize anticompetitive or monopolistic acquisitions, especially in the media and telecommunications industry. In the year 2000 alone, the government blocked a potential merger between American Telephone and Telegraph (AT&T) and the media giant Time Warner, and another proposed merger between long-distance telephone providers WorldCom and Sprint.

Bibliography

Berle, Adolf A., Jr., and Gardiner C. Means. Modern Corporation and Private Property. New Brunswick, N.J.: Transaction Publishers, 1991.

Chandler, Alfred D., Jr. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass.: Harvard University Press, 1977.

Means, Gardiner C. The Corporate Revolution in America: Economic Reality versus Economic Theory. New York: Crowell-Collier Press, 1962.

A corporation that limits its business to the ownership of stock in and the supervision of management of other corporations.

A holding company is organized specifically to hold the stock of other companies and ordinarily owns such a dominant interest in the other company or companies that it can dictate policy. Holding companies must comply with the federal antitrust laws that proscribe the secret and total acquisition of the stock of one corporation by another, since this would lessen competition and create a monopoly.

A company that controls other companies.

For the band, see Big Brother and the Holding Company.

The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. Please improve this article or discuss the issue on the talk page.

A holding company is a company that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. In the U.S., 80% or more of voting stock must be owned before tax consolidation benefits such as tax-free dividends can be claimed.^{[citation needed]}

Sometimes a company intended to be a pure holding company identifies itself as such by adding "Holdings" or "(Holdings)" to its name, as in Sears Holdings.

Contents 1 United States 1.1 Broadcasting 1.2 Personal holding company 1.3 Public utility holding company 2 Parent company 3 See also 4 References

United States

In the United States, Berkshire Hathaway is one of the largest publicly-traded holding companies; it owns numerous insurance companies, manufacturing businesses, retailers, and other companies. Two other large notable holding companies are UAL Corporation and AMR Corporation, publicly traded holding companies whose primary purposes are to wholly own United Airlines and American Airlines, respectively.

Broadcasting

In U.S. broadcasting, many major media conglomerates have purchased smaller broadcasters outright, but have not changed the broadcast licenses to reflect this, resulting in stations that are (for example) still licensed to Jacor and Citicasters, effectively making them holding companies for their owner Clear Channel Communications. This is sometimes also done on a per-market basis; for example in Atlanta both WNNX and later WWWQ are licensed to "WNNX LiCo, Inc." (LiCo meaning "license company"), both owned by Susquehanna Radio (which was later sold to Cumulus Media). In determining caps to prevent excessive concentration of media ownership, all of these are attributed to the parent company, as are leased stations, as a matter of broadcast regulation.

Personal holding company

In the United States, a personal holding company is defined in section 542 of the Internal Revenue Code. A corporation is a personal holding company if both of the following requirements are met^[1]:

• Personal Holding Company Income Test. At least 60% of the corporation's adjusted ordinary gross income for the tax year is from dividends, interest, rent, and royalties.
• Stock Ownership Requirement. At any time during the last half of the tax year, more than 50% in value of the corporation's outstanding stock is owned, directly or indirectly, by five or fewer individuals.

Public utility holding company

Regarding the regulation of natural gas or electric utilities, a "Public Utility Holding Company" is a company which owns a subsidiary which distributes electricity or gas to retail customers. Such companies are subject to the Public Utility Holding Company Act of 2005.

Parent company

A parent company is a holding company that owns enough voting stock in another firm (subsidiary) to control management and operations by influencing or electing its board of directors. A parent company could simply be a company that wholly owns another company. This would be known as a "wholly owned subsidiary."

See also

• Bank holding company
• Conglomerate (company)
• Investment company
• Patent holding company
• Shell corporation

References

1. ^ "The PHC Trap". NYSSCPA. http://www.nysscpa.org/cpajournal/old/14469571.htm. Retrieved on 2008-11-26. 

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