Define: Holding Company

A holding company is a type of corporate entity that exists primarily to own and control other companies, known as subsidiaries. Instead of engaging in operational activities directly, a holding company typically owns the stock or assets of other companies, providing it with control over their operations and strategic decisions. Holding companies often serve as a vehicle for diversification, risk management, and tax planning, as well as for facilitating acquisitions and corporate restructuring. By holding interests in multiple subsidiaries, a holding company can spread its investments across different industries or geographic regions while maintaining centralised control and management.

A holding company is a company that owns part, all, or a majority of other companies’ outstanding stock. It usually refers to a company that does not produce goods or services itself; rather, its only purpose is to own 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.

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.

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 licences to reflect this, resulting in stations that are (for example) still licenced to Jacor and Citicasters, effectively making the 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 licenced to “WNNX LiCo, Inc.” (LiCo meaning “licence 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:

• 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% of the corporation’s outstanding stock is owned, directly or indirectly, by five or fewer individuals.

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 site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 10th April, 2024.