Holding Companies vs. Parent Companies
A holding company owns shares or stock in other companies to control them. A parent company purchases subsidiaries to aid its operations.
A personal holding company’s income is from rent, royalties, dividends, and interest. This simplifies tax requirements between companies owned by the parent or holding company.
Subsidiaries and Legal Structure
A subsidiary is distinct from the parent or holding company and is owned or controlled by them. The main difference is control, where a holding company owns shares but does not manage daily operations, while a parent company directly manages subsidiaries.
Another difference is legal structure. A parent and subsidiaries may be one entity, whereas holding companies and subsidiaries remain separate entities, affecting taxes and regulations.
Example of Parent and Holding Company
A holding company limits liability, streamlines management, and maintains ownership of each business. Subsidiaries under a holding company parent are operating or subsidiary companies. Unlike parent companies, holding companies have no day-to-day operations and exist solely to own subsidiaries.
Legal Definition of a Parent Company
A parent company owns over 50 percent of a subsidiary’s shares, giving it control to manage the subsidiary’s operations. Legally, parents and subsidiaries are distinct entities with limited liability.
Parents and subsidiaries can be one legal entity, while holding companies and subsidiaries stay separate, affecting regulations and taxes.
Definitions differ between general holding/parent and for accounting purposes, where accounting definitions do not include sub-subsidiaries.