{"id":39143,"date":"2021-12-31T12:02:55","date_gmt":"2021-12-31T06:32:55","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=39143"},"modified":"2021-12-31T12:03:37","modified_gmt":"2021-12-31T06:33:37","slug":"holding-and-subsidiary-company-key-differences","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/","title":{"rendered":"Holding and Subsidiary Company: Key Differences"},"content":{"rendered":"\n<p class=\"has-drop-cap\">This article pens down some key differences between holding and subsidiary company. A holding company technically doesn&#8217;t engage with any business affairs or be involved with trading commodities or services. Such companies seek to hold controlling stock in other entities. <\/p>\n\n\n\n<p>Although such companies hold the assets\nof other entities, if they often maintain oversight capacities, they can\ninfluence and manage the management decisions. Still, they cannot participate\nin the operations or day-to-day business affairs of concerned subsidiaries. A\nholding company is also regarded as the &#8220;umbrella&#8221; or parent company.<\/p>\n\n\n\n<p>These companies may serve the common\nobjectives but have distinct roles to play from the management viewpoint. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#The_legal_definition_of_Holding_Company_cited_under_Company_Act_2013\" >The legal definition of Holding Company cited under Company Act, 2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#Key_points_to_Ponder_Relating_to_the_Holding_Company\" >Key points to Ponder Relating to the Holding Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#What_is_the_Subsidiary_company\" >What is the Subsidiary company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#Legal_Definition_of_the_Subsidiary_Company_as_per_Company_Act_2013\" >Legal Definition of the Subsidiary Company as per Company Act, 2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#How_Does_a_Subsidiary_Operate\" >How Does a Subsidiary Operate?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#Provisions_Regarding_the_Share_Acquisition_for_Subsidiary_company\" >Provisions Regarding the Share Acquisition for Subsidiary company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/holding-and-subsidiary-company-key-differences\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_legal_definition_of_Holding_Company_cited_under_Company_Act_2013\"><\/span>The legal definition of Holding Company cited under Company Act, 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per the <strong>2(46) of the Companies Act, 2013<\/strong><sup><a href=\"https:\/\/www.mca.gov.in\/Ministry\/pdf\/CompaniesAct2013.pdf\"><strong>[1]<\/strong><\/a><\/sup>, the holding company refers to a type of company that holds a minimum of fifty per cent shares of another entity and has the control to participate in decision making, influences and administers the company&#8217;s BOD. A holding company generally comes to effect for controlling and administering subsidiary companies.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_points_to_Ponder_Relating_to_the_Holding_Company\"><\/span>Key points to Ponder Relating to the Holding Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>A\nholding company refers to a type of entity that holds a controlling interest in\nother entities, commonly known as subsidiaries.<\/li><li>The\nparent corporation can control the subsidiary&#8217;s policies and administer\nmanagement decisions but does not have any engagement with daily operations. <\/li><li>Holding\nentities are safeguarded from losses triggered by the subsidiaries. Therefore,\nif a subsidiary goes insolvent, its creditors would have the right to confront\nthe holding company. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Subsidiary_company\"><\/span>What is the Subsidiary company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Subsidiary companies, on the other hand,\nare a company that operates under the control of another entity, known as a\nholding company or the parent company. The parent company has control over half\nof the stocks of the subsidiary company. <\/p>\n\n\n\n<p>In cases where a subsidiary is 100 per\ncent owned by another entity, the subsidiary would be regarded as a <strong><em>wholly-owned\nsubsidiary<\/em><\/strong>. The concept of &#8220;reverse triangle mortgage&#8221; is\nextensively applied to such companies. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Legal_Definition_of_the_Subsidiary_Company_as_per_Company_Act_2013\"><\/span>Legal Definition of the Subsidiary Company as per Company Act, 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>A subsidiary company, in relation to any\nother entity, refers to a company in which the parent or holding company-<\/em><\/strong><\/p>\n\n\n\n<ul><li>Controls\nthe BOD&#8217;s composition; or <\/li><li>Controls\nmore than 50 per cent of the total share capital either at its owns or\ncollectively with one or more of its subsidiary entities:<\/li><\/ul>\n\n\n\n<p>Provided that such class of parent\ncompanies as may be advised shall not have layers of subsidiaries beyond limit\nas may be prescribed. <\/p>\n\n\n\n<p>The Act further states that a company\nshall be considered as a subsidiary company of the parent company even if the\ncontrol referred to in sub-clause (i) or sub-clause (ii) is of another\nsubsidiary entity of the parent company;<\/p>\n\n\n\n<p>The composition of BODs shall be\nconsidered to be administered by another entity if that other entity by the\nexercise of some power can appoint or remove all or a majority of the active\ndirectors; <\/p>\n\n\n\n<p><strong><em>*Subsidiary company does not have right\nto hold shares in the parent company except in few conditions as mentioned in\nthe governing bylaws. This is a major point of difference between the holding\nand subsidiary company.<\/em><\/strong>\n<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Does_a_Subsidiary_Operate\"><\/span>How Does a Subsidiary Operate?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>A parent or a holding company generally sets up a subsidiary to get access to the following benefits;<\/strong><\/em><\/p>\n\n\n\n<ul><li>Diversified\nRisk <\/li><li>Enhanced\ntax advantages<\/li><li>Separate\nmanagement<\/li><li>Minimal\nregulatory requirements<\/li><li>Asset\nprotection<\/li><li>Expansion\n<\/li><li>Economy\nof scale <\/li><\/ul>\n\n\n\n<ul><li>Nonetheless,\nsuch companies have a distinct legal status from their holding companies,\nmanifesting their obligations, taxes, and governance independence.<\/li><\/ul>\n\n\n\n<ul><li>When\na holding company sets up a foreign land subsidiary, the latter must adhere to\nthe regulation of a country in which it operates. <\/li><li>Holding\ncompanies have considerable advantages over the subsidiaries regardless of\ntheir controlling interest.<\/li><\/ul>\n\n\n\n<ul><li>Such\ncompanies, along with other shareholders (if any), can cast their vote to\nchoose the BODs of a subsidiary company. A board member may often overlap\nbetween a subsidiary and its holding. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Provisions_Regarding_the_Share_Acquisition_for_Subsidiary_company\"><\/span>Provisions Regarding the Share Acquisition for Subsidiary company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per Company Act, 2013, no company\nshall secure or hold any shares in its parent entity, either by itself or via\nits nominees. Likewise, no parent company shall allot its shares to any of its\nsubsidiary entities, provided that nothing in the applicable sub-section shall\napply to a case.<\/p>\n\n\n\n<p><strong><em>Where the subsidiary entity owns such\nshares as a legal representative of a deceased member of the parent company; or\n<\/em><\/strong><\/p>\n\n\n\n<p>(b) Where the subsidiary entity owns such\nshares as a trustee; or<\/p>\n\n\n\n<p>(c) where the subsidiary entity acting as\na shareholder even before it was set up as a company of the holding company;<\/p>\n\n\n\n<p>Provided further that the subsidiary\nentity referred to in the previous provisions shall have a right to cast a vote\nat a board meeting of the parent company only in respect of shares owned by\nit&#8217;s as a legal representative or as a trustee, as mentioned in clause (a) or\nclause (b) of the said proviso.<\/p>\n\n\n\n<p>The reference in the said section to the\nshares of a parent company which is an entity limited by guarantee or an\nunlimited entity lacking a share capital, shall be construed as a reference to\nits members&#8217; interest, whatever be the form of interest. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The holding and subsidiary company operates in different legal regime and thus serve different purposes. Despite lack of ownership and control, subsidiary companies take a major toll as they are responsible for dealing with day-to-day business undertakings. On the other hand, the holding company remains isolated from the operation-related tasks and focuses on controlling and taking major business decisions about its subsidiary entity.  Also, it is essential to note down that holding and subsidiary companies have separate legal identity. Therefore, the subsidiary company is solely responsible for addressing events like insolvency and loans repayments. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/procedure-for-registering-an-indian-subsidiary-company\/\">Procedure for Registering an Indian Subsidiary Company<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This article pens down some key differences between holding and subsidiary company. A holding company technically doesn&#8217;t engage with any business affairs or be involved with trading commodities or services. Such companies seek to hold controlling stock in other entities. Although such companies hold the assets of other entities, if they often maintain oversight capacities, [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":39145,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1,1035],"tags":[1451],"acf":{"service_id":"7"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":12961,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/39143"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=39143"}],"version-history":[{"count":6,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/39143\/revisions"}],"predecessor-version":[{"id":39152,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/39143\/revisions\/39152"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/39145"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=39143"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=39143"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=39143"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}