A company which acquires more than 50% equity shares of any other company in order to control the composition of its board of directors, it is called holding company. Holding company’s main aim is to eliminate the competition, to achieve the economies of production and to obtain the economies of management.
Advantages of holding company
1) Less investment is required for acquiring interest in another company.
2) Both the companies enjoy the benefits of monopoly.
3) Each company has to prepare its own books of account which helps in knowing the financial position of the company.
4) The subsidiary company does not liquidate it continues to operate.
There are some disadvantages of holding company also and these are:
1) There is the possibility of fraud by holding company.
2) There are the chances where subsidiary company may be forced to appoint a person as director of the choice of holding company.
Different types of holding company
1) Pure holding company: a company which holds majority shares of another company.
2) Off spring: a new company is formed to take over the share of existing company.
3) Intermediate holding company: a holding company which itself is the subsidiary of another company.
4) Mixed or operating holding company: it is the company which controls another company only for financial gains.