A “holding company”, also known as a parent company or umbrella company, is typically a business entity such as a corporation or limited liability company established to strictly own stock in other business entities.
In other words, the company “holds” stock or securities in other companies.
This is in contrast with an operating company that is primarily intended to operate a business by selling goods and services, producing goods, or actively engaging in business operations.
A holding company can be established to own controlling interests in any other companies and in any industry such as real estate, insurance, financial, or other.
The holding corporation can have an impact on the subsidiary companies’ policies and management decisions but will not have an active role to play in the actual operations of the subsidiary.
What’s notable in a structure where a parent company holds stock in subsidiaries is that the parent or holding is shielded from losses or business risk affecting the subsidiaries.
Business owners may choose to divide their business operations in many business entities as a way to reduce business risk and mitigate legal and financial liability exposure to the business.