What is holding? The definition of the concept and its structure

What is holding?

Holding is the main company that owns controlling stakes in all subsidiaries united in a single structure. The main company controls the activities of all organizations that make up its membership. Very often such enterprises are independent from each other and have different spheres of activity. More than half of the century, such forms of holdings as circular and cross-shaped are developing.

A circular holding company is such a system when a subordinate company can simultaneously become a co-owner of the capital of the main company if it acquires shares of a higher founder. As a consequence, the subsidiary company may to some extent control the activities of the parent company.

What is cross-holding? This is a form of capital participation, when a parent company of one structure can become a partner-owner of blocks of shares of subsidiaries that are part of the holding structures of other parent companies.

These two types of holdings are more suitable for such commercial structures, which are in the category of difficult to regulate by state bodies.
The founders of the holding can be both physical and legal persons.

Organization Properties

To better understand what a holding is, let's look at its distinctive features. These include a combination of shares of companies in various industries and spheres of the economy, which are dispersed in many regions. If you draw a pyramid, you can imagine that there are one or two companies at the top, from which the daughter, grandchildren and other related companies go down. So it looks like the gradualness of such an organization as holding. The definition of the holding indicates that its management is usually centralized. It is almost always in the hands of the parent company.

The structure of the holding is an association of companies, the capital of which is owned by the parent company. What is a holding in the context of the relationship between the subsidiaries and the parent company? Subsidiary companies are legal entities and are completely independent, and the parent company profits from deposits in their capital, and is not responsible for their obligations.

Ways of association

Enterprises can be merged into holdings in six ways:

The first method is called horizontal integration - joining enterprises, which are united by a common type of activity. This is done to conquer new market segments, to strengthen the capacity of one company with the strengths of another.

The second way is vertical integration - organizations are united in one technological cycle, mainly to reduce the total costs of production.

The third way is the creation of new companies and their subsequent joining to the created holding.

The fourth way is the creation of a new management company on the shares of two different organizations and its subsequent development, already without these organizations.

The fifth option - in fact, the same as the previous one, only unite national and transnational corporations.

And the last, but no less popular and popular way, is the division of large companies after their restructuring.