Holding Company

Investment Dictionary -> Holding Company

Holding company is a legal entity which owns the outstanding shares of other companies. Moreover, this company disposes of sufficient stock in another firm, possessing voting rights over the latter. The voting stock grants to the holding company the right to exert control over the management and the operational activities of the other company. The holding may impact on the decision taking process and elect a board of directors of its own choice. Holding companies are sometimes referred to as parent companies. These entities have enough voting stock of their subsidiaries. Companies that are owned by holdings in their entirety are known under the name ‘wholly owned subsidiary’.

Typically, these types of companies are not engaged in the actual production of goods or services. Their purpose is the acquisition of shares in other companies. The ownership of diversified stock reduces the risk of potential losses on the part of the owners of the holding company. Legal entities, functioning as holdings, sometimes distinguish themselves by including the title ‘Holding’ in their company names.

The US holding company Berkshire Hathaway, owned by Warren Buffet, is one of the most cited examples of large holdings. The company has voting stock in the Government Employees Insurance Company (GEICO), the fast food restaurants Dairy Queen, the flight company Executive Jet, the manufacturer of candies and chocolate products See`s Candies, and many other businesses. Another large holding company is the headquartered in Deerfield Fortune Brands. The company owns subsidiaries which engage in the production of alcohol (such companies are DeKuyper, Jim Beam, and Ronrico). In addition, Fortune Brands owns subsidiaries which specialize in the production of golf equipment, office equipment, and home products. Titleist, Cobra, and Pinnacle are subsidiary companies engaged in the produce of golf equipment. Aristokraft and Master Lock are subsidiaries which specialize in the production of home equipment. Fortune Brands has acquired companies which focus on the manufacture of faucets, cabinets, and padlocks. Finally, ACCO, Day-Timers, and Swingline focus on the development and production of office products.

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