Significant things about holding and the subsidiary companies

Holding companies:


Whether you are beginning to invest in securities which are issued by corporation such as preferred stocks, common stocks or corporate bonds or you are doing case studies on private companies because you are going to invest in your own business. In fact most of the successful companies in the world are really holding companies.

This basic introduction here is to help you understand what holding companies are, why they play such a vital role in the modern economy and some significant things you might consider before investing in or forming one.

  • Holding company is a company which doesn’t have any activities, operations or other active business itself. The holding company owns the assets.
  • These assets could be the shares of stock in other corporations, limited partnerships, limited liability companies, hedge funds, private equity funds, bonds, publicly traded stocks, song rights, real estate, patents, brand names, copyrights, trademarks or virtually anything else that has value.

Subsidiary companies:

A subsidiary is a company with voting stock is more than 50% controlled by another company, generally referred as the parent or the holding company.

A subsidiary is partly or completed owned by the parent company and that holds a controlling interest in the subsidiary company.

In case, parent company owns a foreign subsidiary, the subsidiary must follow the laws of the country where it is incorporated and operates.

And the parent company carries the foreign subsidiary’s financials on its consolidated financial statements.


The purchase of interest in a subsidiary differs from a merger in that the parent corporation and can acquire the controlling interests with smaller investments.

Approval of stockholder is not required in the formation of a subsidiary as it would be in the event of a merger.

Why to form a subsidiary?

Subsidiaries are very common in some industries particularly in real estate. A company which owns real estate has several properties that may form an overall holding company, with each property as subsidiary.

For example, if one company, say “A” owns the Companies “B, C, and D”. If the company D is sued, the other companies are not affected.

How subsidiary is formed?

A subsidiary is formed by registering in a particular state where the company operates.  While during registration the ownership of the subsidiary will be exhibited.

Say for e.g. a company “A” wants to form a subsidiary company to manage the properties. The company “B”, the subsidiary registers with the state and indicates that it is wholly owned by the company “A”.

How a subsidiary operates?

A subsidiary company operates as a normal company, while the parent company has only oversight. If the parent company supervises the day-to-day operation of the subsidiary company, then it means the parent would take on the liability of the subsidiary.

Accounting and taxes for subsidiaries:


A subsidiary is a separate entity from an accounting standpoint. So it would keep its own bank accounts, financial records, assets and liabilities. Any transactions between the subsidiary and the parent company must be recorded.

  • Many companies file the consolidated financial statements such as balance sheet and income statement for shareholders, by showing the parent and all subsidiaries combined.
  • A subsidiary is a separate tax entity from a tax stand point.
  • Each subsidiary has its own tax ID number and it pays all its own taxes according to the business type.

If a parent company owns 80% or more of shares and voting rights for a subsidiary, it could submit the consolidated tax return in order to take the advantage of offsetting profits of one subsidiary with losses from another.

The subsidiary must consent needs to be included in this consolidated tax return.

Parent company:

  • A parent company of the subsidiary may be the sole owner or one of several owners.
  • A parent company is the one which controls other small businesses by owning an influential amount of voting stock or control.
  • Parent companies are actually larger firms which exhibits control over one or more small subsidiaries in either the same industry or complimentary industries.
  • It can be either hands on or off with subsidiaries depending on the amount of managerial control given to the subsidiary managers.

Being a larger corporation, a parent company has a significant ownership over a subsidiary or a group of subsidiaries. These partially or wholly owned smaller companies are controlled by the parent to varying degrees. All the parent companies own more than 50% of a subsidiary’s voting stock.


The term “Holding Company” and “Subsidiary Company” are used to describe managerial, financial, legal and governing relationships between different types of business organisations which includes corporation and financial institutions.

A holding company is an entity which is formed to buy and hold the majority of stock of other companies whereas subsidiary is a business whose majority of stock is owned by a holding company.


There is a considerable difference between parent company and the holding company in terms of operations.

A holding companies has no operations of its own, it owns a controlling share of stock and holds asset of other companies i.e. subsidiary companies.

 A parent company is a company which runs a business and that owns another business (the subsidiary). The parent company has the operations of its own and the subsidiary may carry on a related business.

For example, the subsidiary might own and manage the property assets of the parent company in order to keep the liability from those assets separate.



A holding company is the one which buys, absorbs or otherwise obtain a majority percentage in another company which becomes its subsidiary company. A holding company must control 50 percent or more of a company’s stock before it’s considered a subsidiary.

  • When a holding company can hold other holding companies, then that can be called as top holding companies.

In some cases, holding company can hold other holding companies that may be called as “top holding companies”.




A holding company directs the management and operations of the subsidiaries, it also owns and maintains the authority to add or remove the board members, directors and the other key management and personnel.

A holding company may have strict managerial control or may allow subsidiaries to act with some level of autonomy for day-to-day business operations includes lower and mid-level hiring and certain budget decisions.

Legal responsibility:


A holding company may invest in subsidiaries in variety of industries to diversify its investments, lower its risk potential and in some instances take the advantage of shared loss and tax consolidation. Although a holding company may enjoy the profits of its subsidiaries, it has a fiduciary responsibility to the subsidiary which it controls. A subsidiary which regains a majority of its shares also regains its autonomy from its holding company.

Wholly owned subsidiary:


If a parent or a holding company which owns 100% of another company is called wholly owned subsidiary.


It is a company in which its common stock is 100% owned by another company, the parent company. A company can become a wholly owned subsidiary through an acquisition by the parent company or having been spun off from the parent company, a regular subsidiary is from 51% to 99% owned by a parent company.


When lower the risks and costs are desirable or when it is not possible to obtain complete or a majority control, the parent company might introduce the associate, affiliate or associate company in which it would own a minority stake.

For example, a wholly owned subsidiary company may be located in a country different from that of a parent company.

The products and clients, the senior management structures are most likely the subsidiary companies have. The operations which are in diverse geographic areas, markets or any other separate industries are maintained by the parent company which can be supported with the help of wholly owned subsidiary.

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