Holding company: Difference between revisions

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{{Business administration}}
 
A '''holding company''' is a [[company (law)|company]] that owns the [[Shares outstanding|outstanding stock]] of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies to form a [[corporate group]]. However, in many jurisdictions around the world, holding companies are usually called parent companies, which, besides holding stock in other companies, can conduct trade and other business activities themselves. Holding companies reduce [[risk]] for the owners[[shareholder]]s, and can permit the ownership and control of a number of different companies.
 
Holding companies are also created to hold assets, such as [[intellectual property]] or trade secrets, that are protected from the operation company. That creates a smaller risk when it comes to litigation.
 
In the [[United States]], 80% of stock, in voting and value, must be owned before [[tax]] consolidation benefits such as [[Dividends received deduction|tax-free]] [[dividend]]s can be claimed.<ref>I.R.C. § 1504(a); I.R.C. § 243(a)(3).</ref> That is, if Company A owns 80% or more of the stock of Company B, Company A will not pay [[dividend tax|taxes on dividends]] paid by Company B to its stockholders, as the payment of dividends from B to A is essentially transferring cash from one company to the other. Any other shareholders of Company B will pay the usual taxes on dividends, as they are legitimate and ordinary dividends to these [[shareholder]]sshareholders.
 
Sometimes, a company intended to be a pure holding company identifies itself as such by adding "Holding" or "Holdings" to its name.
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