Jasmine Directory

A certain type of corporation, called a holding company, is created in response to various issues within the marketplace. A holding company obtains and manages a controlling interest in other companies. In the banking industry, one parent holding company will oversee multiple subsidiaries that offer various financial services.

In some jurisdictions, the bank could not perform all of these services as a single entity. The holding company model prevents a governing body from accusing the corporation of conflicts of interest. Rules that govern holding companies will differ between countries so the proper structure must be tailored to the business locations.

A short-term holding company can be created if the management team of a certain company receives an indication that a hostile takeover of the company is about to take place. To avoid the takeover, a holding company is created and more than 50 percent of the company stock is purchased by the holding company.

The shares are converted into shares of stock in the new holding company. The takeover attempt must be completed in a limited time period with the acquired shares as part of the deal. Refusal to offer the acquired shares risks loss of the money invested. Once the takeover threat is thwarted, the holding company can continue to operate for an indefinite time period.

Holding companies can be created to hold the stock of companies in many different industries. Each business operates independently and must perform at acceptable levels. A single company can be sold without affecting the other holdings. Losses realized in one business will not affect the earnings of other companies held.

Rules governing the holding company model dictate how much stock must be held in each company. Countries have different rules about the holding companies that can be created within their borders.