Holding Company: Meaning, Benefits, Types and Registration

Holding company refers to a parent company. In today’s world, companies don’t just operate one business Many large businesses operate in a holding company structure. This helps your business to grow, save taxes, and manage risks. This enables you to control many companies effectively. Many people feel confused about this concept. Understanding how a holding company works helps you to make smarter decisions. This blog will answer all your questions regarding this. Let’s read and understand together.

Holding company definition

As the name suggests, a holding company. ‘Holding’ means controlling, and a ‘company’ refers to the businesses.  As the Company Law suggest, a company controlled by another is called a subsidiary.  The company controls a unit, is a holding company. The word control refers to the benchmark. It is mentioned in the company law. This determines the status of the holding company

A holding company is a business entity in itself. It is created to own and manage assets. A holding company may or may not be involved in business operations, depending on its structure.

• Primarily it controls
• It includes one or more companies
• It holds a major percentage of shares

What is a subsidiary company?

Since we are exploring a holding company, we need to learn about subsidiary companies.

The subsidiary company is a company controlled by a holding company. The parent company can appoint or remove the board of directors. It involves the capital. Here, the holding company controls more than one half of the total voting power. The holding company can appoint a board of directors to the branch company

So, in short, their relationship is like:

• A holding company can control the composition of the board of directors
• It holds more than 50% of the total voting power
• A holding company can own the shares directly
• It includes more than one of its subsidiaries

For instance, if you are a holding company C. You have a Unit company, B.

The company B has another branch, D.

Then D automatically becomes a subsidiary of holding company C.

Features of a holding company

The holding company has many features.  These are listed below:

Controlling subsidiaries

This holds the majority of shares. It gives control over their policies. They Strategic decisions and looks after the management.

Limited Liability

1.  This company and its subsidiaries are legally different
2. It helps in limiting the liability
3. This protects the holding company’s assets

Managing Risks

This is a division in business activities. They hold assets in subsidiaries. This reduces the holding company’s risk. Here, each entity is separated from the others. As a result, it does not affect one another

Asset owning

Primarily, this company holds assets. It includes stocks, Real estate, Intellectual property, equipment. It is not involved in business operations

Tax

• Here, profits are distributed as dividends
• Holding companies are taxed like any other company.
• They can gain profits from selling shares
• Holding companies are not tax-exempt by default in India

Central Administration

Flexibility

What are the types of holding companies?

It has four types. These are:

(i) Pure Holding company

• It just holds shares
• This does not involve business activities
• Manages and controls one or more firms

(ii) Immediate Holding Company

• It owns voting stocks
• This can control another firm
• Even if it is under one parent company

 (iii) Intermediate Holding Company

• It owns voting stocks
• This can control another firm
• Even if it is under one parent company

(IV) Mixed Holding Company

1. You can call this a holding operating company
2. It not only controls firms
3. Operates the business also

Registration process of the holding company

(A) Deciding on the name and company structure

• You have to choose a company structure
• This should be under the Companies Act 2013
• The name should not be the same as other existing businesses

    (B) Obtain DSC (Digital Signature Certificate)

• Each director needs to have a DSC

• It is vital
• You need to submit this to the MCA

     (C) The DIN

• The directors of the company need DIN
• This needs to be obtained in the company registration
• You need to submit Form DIR-3 (if applicable)

(D) SPICe+

• You need to submit the SPICe+Part A
• This is for name reservation
• Part B is for company registration

(E) Drafting MoA and AoA

• These two are vital documents
• MoA includes the objective of controlling subsidiaries
• The AoA defines the rights of the parent company

(F) Submitting Incorporation forms SPICe+part B

• You need to fill out this form
• After this, attach the MoA and AoA
• Registered office address
• Declarations
• Affidavits

(G) Submit the e-forms

• You need to submit INC 9
• AGILE PRO (if applicable)
• ESI
• DIR 2 (consent form from the directors)

(H) Paying the Registration Fees

• You need to pay the fees for incorporation
• It is based on your company’s authorised capital
• Additional fees
• This applies to filing documents with the MCA

(I) Issuing a certificate of incorporation

• After verifying your documents, MCA issues a COI
• This includes your CIN

(J) PAN and TAN

• After incorporation, you need to apply for a PAN and TAN
• You need to do this process in the MCA portal
• Or, you can also do it directly through the tax department

(K) Register with other authorities (if applicable)

• It depends on your business activities
• It includes GST
• EPFO (if applicable)

Closing thoughts

To close this discussion, I will say a few things. Holding company is beneficial

It helps you grow. It protects your assets. This also offers better control and reduces risks. The tax benefits are also there. If you still have some questions, contact Online Legal India today.

FAQs

1. What is a Holding Company?

It is a parent company with multiple branches or units

2. Can a holding company operate its own business?

Yes, a holding company can operate its individual business

3. Is a subsidiary company legally separate from a holding company?

Yes, it has a different legal identity from the parent company

Disclaimer

This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.