Structure of Holding Company
1. Parent Holding Company: The parent holding company is the apex of the corporate structure. It does not directly engage in any business activities or provide any services. Their role is to oversee the overall vision, strategy, and governance of the subsidiary companies. They make major policy and investment decisions. The core assets of the holding company are the shares it owns in subsidiaries. Its income comes from the earnings and dividends of operating subsidiaries.
2. Subsidiary Operating Companies: The subsidiary companies are separate legal entities that conduct business operations. They produce goods, provide services, and deal with customers directly. Each subsidiary has its management team responsible for day-to-day operations, products, and services. Subsidiaries function independently regarding routine business activities. However, they must align with the overall strategy and directives of the parent holding company on high-level policies, major investments, acquisitions, etc.
3. Separation and Limited Liability: A key feature of the holding company structure is a separation between the parent and subsidiaries. Though connected through ownership, each subsidiary’s finances, obligations, and liabilities are separate. This contains the risk of financial loss. The failure of one subsidiary does not directly impact the holding company or other subsidiaries.
4. Shared Resources and Synergies: While subsidiaries operate independently, the holding company structure allows certain resources and functions to be shared. This includes finance, administrative services, human resources, IT, legal, etc. Sharing resources results in coordination and cost efficiencies across subsidiaries.