Disadvantages of Holding Companies
Holding companies do not free from some limitation. Some limitations or disadvantages of holding companies are given below:
- Monopoly: Holding company may develop into a monopoly to swindle excessive profits by manipulated control over the market. The questions of economics remains in the background while desire for monopoly power colours its policies. There is possibilities of social interest being ignored by the holding companie's craze for dominance.
- No corresponding liability: Holding company has concentrated power of control over subsidiaries. But there is no corresponding liability or responsibility pinpointed on it for achieving any precise operating results or profits. Control without accountability for results may prove detrimental to the interests of the group.
- Keep away from risks: Holding company may try to shirk its responsibility and to keep away from the risks by selling its holding in the subsidiaries at the critical times.
- Keen interest in the affairs: Since control is concentrated in holding company, those managers who are in charge of the subsidiaries may not even keen interest in the affairs. They may not show business initiative as there is no direct incentive for them to put in deligent efforts for managing their units. Thus, managerial efficiency at operation level may not be maintained to the expected extent.
- No separate administration for subsidiaries: Since identity of subsidiary companies has to be frmally retained it becomes necessary to continue seperate administrative set up maintaining accounts documents etc. This limits the administrative economics available to a holding company.
- No perfect integration: Perfect integration may not become a reality because of persisting internal frictions and tussels among the component subsidiaries.
- Over capitalised: With the ploding of capital of different subsidiaries. Holding company may find itself over capitalised over - capitalisation is a token of under utilization of excessive overheads costs, wastage of reserves etc.