HOLDING COMPANIES
Holding Company - Definition
What Is a Holding Company?
Holding companies are conglomerates that own
other firms. A company that owns enough voting stock in another
firm to control management and operations by influencing or
electing its board of directors. Also called parent company.
It usually refers to a company which does not
produce goods or services itself, rather its only purpose
is owning shares of other companies. Holding companies allow the
reduction of risk for the owners and can allow the ownership and
control of a number of different companies.
The
use of a holding company is legally
simpler and less expensive than other means of gaining control
of another company, such as merger or consolidation. A
holding company is able to reap the
benefits of a subsidiary’s goodwill and reputation, yet its
liability is limited to the proportion of the subsidiary’s stock
that it owns. These and other factors make holding companies an
effective form of organization on both national and
international levels. The parent company in a conglomerate
corporation is usually a holding company.
International companies may have many separate divisions in
different countries, or within the same country. If a patent is
granted in the United States to a European-based arm of a
multinational company, the U.S. arm of that same company cannot
make use of the invention in the U.S. without infringing the
patent.
Consequently, many multinationals set up a
patent holding company in a tax-favourable country or U.S. state
(e.g. Switzerland or Delaware) and then sell (i.e. transfer or
assign) all of the patent rights for the company as a whole to
that patent holding company. The patent holding company can then
focus on the task of granting licences to the different
divisions of the multi-national as well as to third parties.
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HOLDING COMPANIES
