Advantages of Holding Companies
Following advantages are associated with holding companies :
- Easy: Combining the companies under holding company is comparitively easier. There is no need for elaborate agreement or unanimous consent of the firms concerned. Acquiring shares by a company in other companies to the extent of more than 50% of their aggregate share capital makes it a holding company.
- Minimum financial ang valuation difficulties: Problem of determining the purchase prise of the undertaking will not crop up in respect of holding company susbsidiary relationship. According to Beacham advantage of the holding company is the financial and valuation of difficulties are minimised and hence amalgamations in this form are much easier to arrange.
- Distinct Entity: Since each subsidiary company retains its distinct entity, it is possible for the holding company to drive the advantage of good will of any of the subsidiaries and also secure economies of scale.
- Maintenance of secrecy: Maintenance of secrecy is another merit of holding company device of combination. Details of assets, operating result, centralised decisions etc. can be kept confidential although broad particulars are given in published balance sheets, "operations of the group." as Beacham puts it "can be cloaked from public scrutiny."
- Economics of large scale: Since holding company represents the union of subsidiaries under common control, it is possible to earn economies of large scale operations and centralised direction and control. Administrative expenses are thus minimised due to this arrangement. "Low cost production and other economics of large scale enterprises have been a strong argument for holding companies.
- Scientific planning: Scientific planning of overall manufacturing and marketing operations is possible by a holding weilding its control over the subsidiaries.
- Decentralized administration: Whenever necessary, holding company can bring about decentralised administration by the subsidiaries and give local character or tap regional potential. Whenever it is felt unwiedly to manage or control the affairs of the subsidiaries suitable degree of decentralised can be thought of to maintain administrative in integrity. According to Beacham observes the holding company structure also facilities decentralization of management where this is desirable in the interests of efficiency.
- Greater financial strength: Holding company can command greater financial strength and stability because its organisation marks the aggregation of capital and assets structure of the subsidiaries.
- Diversification of risks: Holding company has stakes in different subsidiaries. Hence the risks of loss or impact of failure will be diversified and also eliminated by suitable administrative action.
- Progressive holding: The shareholders of subsidiary companies may find the worth of their holdings progressively appreciated as the holding company goes on seeking control of more and more subsidiaries.