Difference between Holding Company and Subsidiary Company

Meaning

A holding company is a corporation or entity that owns a controlling interest in one or more other companies, known as subsidiaries.

A subsidiary company is a separate legal entity that is controlled by another company, known as the parent or holding company.

Ownership

A holding company is an entity that owns a significant portion of the shares or voting rights in other companies. It typically holds controlling interest (usually more than 50%) in its subsidiaries.

A subsidiary company is a separate legal entity that is controlled by another company, known as the parent or holding company. The parent company holds the majority of voting rights or shares in the subsidiary.

Control

A holding company exercises control over its subsidiaries through ownership of their voting stock or through contractual agreements.

Subsidiaries operate autonomously to some extent but are ultimately subject to the control and influence of the parent company.

Management

It may provide strategic direction and governance oversight but typically does not involve itself in the day-to-day management of its subsidiaries.

They have their own management teams and operational structures, but major decisions may require approval from the parent company.

Business Operations

Holding Companies do not engage in the operational activities of their subsidiaries. Instead, they primarily focus on holding and managing investments in other businesses.

Subsidiaries are independent legal entities that engage in operational activities within their respective industries. They may have their own products, services, customers, and revenue streams.

Financial Reports

Holding Companies typically consolidate the financial statements of their subsidiaries into their own financial reports. This consolidation provides a comprehensive view of the overall group’s financial performance.

Subsidiary Companies maintain their own financial records and produce separate financial statements. However, these financial statements may be consolidated into the financial reports of the parent company.

Liability

Holding Companies are generally not liable for the debts and obligations of their subsidiaries. Each subsidiary maintains its own legal and financial independence.

Subsidiaries have limited liability, meaning their obligations are generally separate from those of the parent company.

Example

Berkshire Hathaway, led by renowned investor Warren Buffett, is a multinational conglomerate and holding company based in the United States.

WhatsApp Inc. (owned by Meta Platforms, Inc.) WhatsApp is a popular messaging application used by billions of people worldwide for communication, sharing media, and staying connected.