A holding company is a business entity that owns the majority of shares in other companies, called subsidiaries. It does not directly engage in day-to-day operations but controls and manages the policies and decisions of its subsidiaries. Holding companies help in managing investments and consolidating control over different business ventures. If you plan to grow your business portfolio, you can check your business loan eligibility to explore funding options.
Features of a holding company
- Ownership: Holds more than 50% of voting shares in subsidiary companies.
- Control: Exerts control over the management and policies of subsidiaries.
- No direct operations: Generally does not participate in daily business activities.
- Investment portfolio: Acts as a means to manage investments across multiple companies.
- Legal identity: Has a separate legal existence from its subsidiaries.
- Risk management: Helps limit risks by segregating businesses under different subsidiaries.
What is a subsidiary company?
A subsidiary company is a separate legal entity controlled by a holding or parent company. The parent company owns the majority of the subsidiary’s voting stock or shares, which gives it authority over the subsidiary’s operations and decision-making. Subsidiaries operate independently but follow the strategic direction set by the holding company. You may also want to check your pre-approved business loan offer to support your subsidiary’s expansion plans.
Features of a subsidiary company
- Ownership: Majority shares are held by the parent or holding company.
- Legal status: Separate legal entity with its own management and financial accounts.
- Operational control: Controlled by the parent company but operates independently.
- Financial reporting: Prepares individual financial statements but consolidates with the parent company’s accounts.
- Business focus: May operate in different sectors or markets than the holding company.
- Liability: Parent company’s liability is limited to its investment in the subsidiary.
Difference between holding company and subsidiary company
| Basis | Holding company | Subsidiary company |
|---|---|---|
| Definition | Owns majority shares in other companies | Controlled by a holding or parent company |
| Legal entity | Separate legal entity | Separate legal entity |
| Operations | Does not usually engage in daily business | Operates its own business |
| Control | Controls policies and decisions of subsidiaries | Managed by its own directors but under parent control |
| Purpose | To manage investments and control other companies | To carry out business activities independently |
Conclusion
Holding and subsidiary companies work together to create a structured business network that balances control, risk, and operations efficiently. Understanding their differences helps in better corporate management and investment decisions. For entrepreneurs and businesses looking to expand, securing a business loan can provide essential financial support.
