The Company as a Holding Company
Ownership of 51% of shares gives majority voting rights
at an AGM and on the payment of dividends the largest
share of profits. 51% gives as much control as a
100% holding.
Individuals or other organisations (e.g. pension funds,
insurance companies, banks) can own shares. Unit and
Investment Trust companies for example exist by owning
shares of other companies.
Some companies (holding companies) may seek to own
sufficient shares (51%) to control other companies.
Holding companies themselves do not make goods or provide
services, the companies they own with 51% will do this.
The owned companies may be:
- Subsidiary companies
The holding company owns more than 50% thus giving
control.
- Associated companies
The parent company owns 20-50%. This is a large shareholding
should provide considerable ifluence (but not control)
over the associated company. How much influence will
depend on ownership of the other shares. Owning 49%
and wanting control when a rival company has a 51%
stake may be a less than appropriate strategy. Related
companies as similar to Assocaited companies. They
typically own fewer than 20% of shares in another
company. This hlding may be held ecause good dividends
may be expected or the two companies are co-operating
with each other in some area of business. Small shareholdings
may be held by banks or Unit or Investment Trust companies
as ingredients in their portfolio of ownership.
Public Limited Companies
PLCs are usually holding companies. The parent or holding
companyçs profits arise from the aggregate of profits
from other companies it owns (its corporate portfolio).
Parent companies may have a corporate head office
and will employ corporate executives/managers, accountants,
legal staff,and other administrators. Sears Plc, GEC
Plc, Unilever, British Petroleum Plc, United Biscuits,
Allied-Lyons Plc are all holding companies which control
many other companies whose products and services are
household names (Persil, Selfridges, Vent-axia, Dolcis,
Tetley Tea)
Holding companies make profits and returns for their
shareholders by buying, running and selling other companies.
They do this via:
- the profits of companies they own (typically 51% control)
or participate in (less than 51% - without control)
- acquiring other companies and selling at a profit;
Such acquisition may include buying another holding
company, splitting up the held companies and selling
some or all of these to redeem all or part of the
initial purchase cost. Some of the acquisitions may
be retained in the holding company's (purchasers) portfolio.
Benefits of a Holding company
- the parent has a portfolio of market interests.
A company that operates in only one market, such as
hotels is subject to the economic and competitive health
of that industry. A holding company spreads risk and
has more opportunities. With a down-turn one of its
market sectors, it can switch its interests and concentrate
more on other sectors or divesting and entering other
markets.
- Each subsidiay is separate a legal entity, they are
not all absorbed in one homogenous company and any
given subsidiary can be readily sold off (portfolio
divestment). A holding company is a convenient structure
for this.
- the rules of majority shareholding mean that a holding
company controls by owning only 51% of shares in a
subsidiary. This is a cheaper option than buying the
company outright.
- it is difficult to control very large organisations.
In a holding company, the Directors of member companies,
can be given degrees of autonomy to manage their companies
effectively. A holding company aids the devolving of
responsibility, authority and action.
- with subsidiary companies maintained as distinct
entities in holding companies further businesses can
be acquired by merger or take-over and added to the
group portfolio.
Annual Accounts and Accounting Rules
The preparation and presentation of the annual accounts
of holding companies are defined by accounting rules
and standards.
Developed and maintained by Chris Jarvis for the BOLA project