Difference Between Holding Company and Subsidiary Company
Holding company has the power of controlling another company because of holding more than 50 % of equity share. Companies having smaller proportion gradually acquire more shares and become a holding company. The company which is hold by another company is called a subsidiary company. A holding company has all the powers to handle the affairs of another company. Even it can change the name of a subsidiary company and form a new one of it. It is not a rule to have more than 50 % of shares to have power over another company. Examples are found in which a company became a holding company even it had merely 10 % of equity another company. But it is due to the facts that no company has more than 10 % of shares.
Usually the relation of both types of companies is that of a child and parent. A company’s all the equity is held by another company. The subsidiary company is completely by holding company. There are examples in which a subsidiary company becomes a holding company when it acquires major portion of equity in another company while a holding company becomes a subsidiary company. This process is represented as a pyramid in which the top company holds all other companies.
There may be holding companies which do not carry out any business operations. But they exist to hold major portion of equity in subsidiary companies. When such company starts a separate business activities, it is termed as mixed holding company. Forming a new company is a tedious task while to become a holding company is easier task. A holding company reaps all the profits of a subsidiary company. It only controls another companies while the entire task is done by them. So many companies prefer to become holding companies.
The assets of a holding company are shown in its financial statements. A subsidiary company’s shares become assets of the parent or holding company which can be used by it in holding other companies. It is a clever policy that the assets of a subsidiary company and a holding company are kept separate so as to avoid any claim of the shareholders. But truth is that subsidiary companies a holding company are one economic entity.