what is a holding company 
a holding company is a business entity usually a corporation or limited liability company llc that typically doesn t manufacture anything sell any products or services or conduct any other business operations rather holding companies or holdcos hold the controlling stock in other companies although a holding company owns the assets of other companies it often maintains only oversight capacities so while it may oversee the company s management decisions it does not actively participate in running a business s day to day operations of these subsidiaries a holding company is also sometimes called an umbrella or parent company paige mclaughlin investopediaunderstanding holding companiesa holding company typically exists for the sole purpose of controlling other companies holding companies may also own property such as real estate patents trademarks stocks and other assets this structure serves to limit the financial and legal liability exposure of the holding company and of its various subsidiaries it may also depress a corporation s overall tax liability by strategically basing certain parts of its business in jurisdictions that have lower tax rates businesses that are completely owned by a holding company are referred to as wholly owned subsidiaries although a holding company can hire and fire managers of the companies it owns those managers are ultimately responsible for their own operations advantages and disadvantages of a holding companyholding companies enjoy the benefit of protection from losses if a subsidiary company goes bankrupt the holding company may experience a capital loss and a decline in net worth however the bankrupt company s creditors cannot legally pursue the holding company for remuneration consequently as an asset protection strategy a parent corporation might structure itself as a holding company while creating subsidiaries for each of its business lines for example one subsidiary may own the parent corporation s brand name and trademarks while another subsidiary may own its real estate holding companies are also relatively easy to create or change this makes it easy to take advantage of geographical differences in taxation regimes if a certain jurisdiction has high business taxes the holding company can simply relocate to a more business friendly environment while continuing operations in the original location if a holding company is set up correctly the debt liability of one subsidiary won t impact any others if one subsidiary were to declare bankruptcy it would not impact the others holding companies support their subsidiaries by using their resources to lower the cost of operating capital using a downstream guarantee the parent company can make a pledge on a loan on behalf of the subsidiary there are some disadvantages to owning subsidiaries through a holding company for investors and creditors it may be difficult to find an accurate picture of the overall financial health of the holding company it is also possible for unethical directors to hide their losses by moving debt among their subsidiaries holding companies can also exploit their subsidiaries by forcing them to appoint chosen directors or forcing the subsidiaries to buy products from one another at higher than market prices they may also force subsidiaries to sell products to one another at below market prices in some cases holding companies can even force their subsidiaries to lay off a large section of the workforce or plunder their acquisitions for saleable assets known as vulture capitalism these strategies can have the effect of inflating the holding company s overall numbers at the expense of the subsidiary they protect the parent company from losses by subsidiaries can provide cheaper operating capital to their subsidiaries parent companies can take advantage of regional taxation laws by moving the holding company and subsidiaries to different jurisdictions they can come with reduced transparency making it harder for investors and creditors to assess the health of the enterprise parent companies can abuse their subsidiaries by forcing them to trade with one another at non market prices parent companies can also force their subsidiaries to appoint chosen directors or change their policies types of holding companiesholding companies fall into different categories depending on their business operations some only exist to hold a single subsidiary while others may be engaged in other business operations the different types of holding companies are explained below 