How to Start a Holding Company?

The shareholding of a Private Limited Company can legally be held by either an individual or by another Company. In case when the shares of a private limited company or limited company is held by some individual or any other company, there is a scope of existence of a holding company- a subsidiary company relationship.

Here is a brief on the features of a holding company-subsidiary company structure and the overall procedure of creating a holding company.

What is a Holding Company?

As per the clauses of Company Law, a company controlled by another company is called a subsidiary company and the company which is controlling is called a holding company.

Therefore, ‘Control’ is used as the benchmark in company law in order to determine the status of the holding company. This control can be in different forms like the control through the management or through the ownership of the shares.

As per the Companies Act, 2013, the phrase ‘Holding Company’ is defined in relation to one or more other companies, meaning a company which has got subsidiary company or companies.

What is a subsidiary company?

A subsidiary company is a company which is controlled by the holding company. The composition of a company’s Board of Directors would be deemed to be controlled by another company if that other company by exercise of some power can appoint or remove all or majority of the Directors of that company.

Relationship between Holding and Subsidiary Company

A relationship between a holding and a subsidiary company is established when:

• The concerned holding company has the power tocontrol the composition of the Board of Directors of the subsidiary company.
• The Holding Company holds more than 50% of the total share capital of the subsidiary company.

The holding company can hold shares of the subsidiary company directly or by one or more of the subsidiary companies.

Also in case, a holding company A has a subsidiary company B and then the subsidiary Company B has a subsidiary Company C, then the subsidiary Company C will then automatically become a subsidiary Company of A.

Reasons for creating a Holding Company

The structure of a holding company- subsidiary company is being setup for numerous reasons. The following are some of the well-known reasons for the setting up of a holding company-subsidiary company relationship.

Ensuring control and unity:

In case of an international or domestic group of companies being setup with a holding company- subsidiary company structure, then it would allow better control over the subsidiary companies and the unity among the group would be sustained.

Ease in the process of transferring:

The ownership of subsidiary companies which are owned by the holding company can be easily shared.

Ease in the process of funding:

Possessing a holding company-subsidiary company structure would ideally allow the setting up of the global credi limits providing funding to the small subsidiary companies at better rates.

Benefits in taxation:

As per the law of the land, there can be taxation benefits for the purpose of setting up of a structure of Holding Company-Subsidiary Company.