A holding company is the company that holds either the whole of the share capital or a majority of the shares in one or more companies so as to have a controlling interest in such companies. Such other companies are known as subsidiary companies. Unlike in amalgamation or absorption, the subsidiary companies retain their identities because they do businesses in their own names
Group of Companies
A Holding company together with its Subsidiaries can be called as the Group of companies.
Need for Group of Companies
The following are the advantages for a company to operate as a group:
1. Decentralisation of financial risk: If one entity fails, it does not affect the other companies in the group. The other companies can continue even if one or two companies in the group fail.
2. Lawful obligation: In some cases, the formation of a subsidiary company is a legal requirement.
3. Diversification possible at lower cost: One company acquires controlling interest of another company. It helps the company to diversify its business activities at least cost.
Subsidiary Company– Sec 2(87) of the Companies Act 2013 defines a company. As per this section,a company shall be deemed to be a subsidiary company of another if and only if:
(a) that other company controls the composition of its board of directors ; or
(b) when the first mentioned company is another company, holds more than half in nominal value of its equity share capital; or
(c) the company is a subsidiary of any company which is that other company’s subsidiary.
A Subsidiary company may be either Wholly Owned Subsidiary or Partly Owned Subsidiary.