Holding company meaning in simple words: parent and subsidiary
Holding company: a company that controls another company, its subsidiary, usually by holding more than half of its votes or by choosing most of its board.
The story
two people, one chai stall
Sameer Chai Foods starts selling premix in supermarkets. A buyer's form asks Sameer an odd question.
SameerThe supermarket wants to know if Sameer Chai Foods has a holding company. Is that a company that holds tea?
RiyaIt holds shares. We own 100% of Sameer Chai Foods, so Sameer Chai Ltd is its holding company. Foods is our subsidiary.
SameerWhat if we owned less than half?
RiyaThen it depends. The law's test is control: more than half the votes, or the power to pick most of its board. If we only had influence, say a fifth of the votes, it would be an associate.
SameerDoes any of this change our accounts?
RiyaA lot. As a holding company, we publish two sets. Standalone shows Sameer Chai Ltd alone, with ₹120 crore of revenue. Consolidated adds Foods' ₹8 crore, so the group shows ₹128 crore.
SameerSo investors see the whole family.
RiyaExactly. And a form called AOC-1 gives one line of numbers for each subsidiary.
The grown-up version
same idea, exact words
Under Section 2(46) of the Companies Act, 2013, a holding company is a company of which another company is a subsidiary. Under Section 2(87), a company is a subsidiary if the holding company controls the composition of its Board of Directors, or exercises or controls more than half of its total voting power, on its own or together with its other subsidiaries. A company in which it has significant influence (control of at least 20% of the voting power, or a say in business decisions under an agreement) but not control is an associate under Section 2(6), and a joint venture is an arrangement it controls jointly with others, with rights to its net assets. A holding company must prepare consolidated financial statements under Section 129(3) and attach Form AOC-1, which summarises each subsidiary, associate and joint venture.
Which rule asks for itSections 2(46), 2(87), 2(6) and 129(3), Companies Act, 2013; Rule 5, Companies (Accounts) Rules, 2014 (Form AOC-1); Ind AS 110, Consolidated Financial Statements.
Spot it in the wild
a real annual report, a real page
- Bajaj Finance has a holding company of its own: Bajaj Finserv, which holds 51.32% of it.
- And Bajaj Finance is a holding company too: it owns 86.70% and 100% of these two subsidiaries.
Don't mix it up
the usual confusions
Holding company ≠ subsidiary
The subsidiary is the company being controlled. Sameer Chai Foods is the subsidiary; Sameer Chai Ltd is its holding company.
Holding company ≠ associate
An associate is only influenced, usually through 20% to 50% of the votes. Its numbers aren't added in line by line; only the owner's share of its profit is.
Holding company ≠ promoter
Sameer is Sameer Chai Ltd's promoter: the person in control. A holding company is always a company that controls another company.
Three quick sips
no sign-up, nothing saved
Hindi mein
होल्डिंग कंपनी
होल्डिंग कंपनी वह कंपनी है जो किसी दूसरी कंपनी, यानी अपनी सब्सिडियरी, को कंट्रोल करती है, आमतौर पर उसके आधे से ज़्यादा वोट रखकर या उसके ज़्यादातर डायरेक्टर चुनकर।