Notes /
Can a holding company also run a business of its own?
Reviewed by Expert review: Claude (AI, Legal Compliance Checker) with cited sources
Yes. A holding company's main activity is owning interests in other companies, but nothing in that definition stops it from carrying on a business of its own. The Wikipedia article on holding companies states that a holding company may conduct trade and other business activities itself. Where the line falls between "holding" and "operating" is a matter of degree, and it is not fixed by a single rule.
Short answer
"Holding" describes what a company mainly does, not everything it may do. A holding company can trade, hold assets and own subsidiaries at the same time. What makes it a holding company is that owning other companies is its main activity. What makes it an operating company is that running a business is.
What "main activity" means
The Wikipedia article describes a holding company by its primary business: holding a controlling interest in the securities of other companies. The word "primary" is the key. It says what the company is mostly for, not what it is forbidden to do.
So a company does not stop being a holding company because it sells something, employs people, or earns revenue of its own. The question is which activity the company is organised around. There is no fixed percentage of income or staff that settles it.
Holding companies that also trade
The Wikipedia article notes that holding companies may conduct trade and other business activities themselves. A group can therefore have a parent that both owns subsidiaries and sells products or services under its own name.
A mixed company is still a holding company if owning other companies remains its main activity. Its own trade then sits in the same legal entity that owns the others. What that means in law depends on the company's structure and on the rules of the country where it is registered, which this page does not cover.
Holding assets apart from operations
A holding company can also hold assets separately from the company that runs the business. The Wikipedia article gives intellectual property and trade secrets as examples of assets that may be held this way, separately from the operating company. The article says this lowers litigation risk; that is the article's description, not a rule of law.
Keeping such assets apart is one way to separate what the company owns from what it trades. Whether a given structure does that in practice depends on the facts and on the law, so it should be checked with an adviser.
Why risk separation is described as an advantage, and its limits
Many descriptions of holding structures present separation as a benefit: a claim against one company does not automatically reach the others. The Wikipedia article's section on Canada includes a lawyer's comment that the corporate veil is no longer a "silver bullet" for a plaintiff's case, in the context of claims against parent companies. That is one commentator's view reported by a secondary source. It shows that separation between companies is not described as a guaranteed shield, but the article does not set out the rule that applies in any particular case. The limits are a matter for the courts and law of the relevant country.
How this differs from an operating company
| Holding company with its own trade | Pure operating company | |
|---|---|---|
| Main activity | Owning interests in other companies | Running the business |
| Own customers | Yes, in addition to holdings | Yes |
| Other companies owned | Yes, as its main activity | Not its main activity |
| Assets held apart | Possible, for example IP | Depends on the structure |
The table describes emphasis, not a legal category.
Trading in a subsidiary instead
A holding company that does not want to trade itself has another option: it can own a separate operating company that does. The tiered structure described in holding company, parent company and subsidiary shows how that looks: the holding company is a parent, and the trading business is a subsidiary.
The difference is which legal entity carries the trade. A holding company that trades directly keeps the trade in the company that also owns the shares of the others. A holding company with an operating subsidiary keeps the trade one step away.
Which setup applies depends on the facts of each case; this page does not rank them.
A simple way to test the label
Two questions help place a company on the spectrum, without deciding its legal status:
- What does the company spend most of its time on: owning and overseeing other companies, or serving customers?
- Where does most of its income come from: dividends and gains from what it holds, or sales of its own?
If both answers point the same way, the label is clear. If they do not, the company is a mixed case, and the label is a matter of judgement that should be made with an adviser.
What to ask an adviser
If you are deciding how a business should be organised, a qualified adviser in the relevant country can answer questions that this page cannot, such as:
- Which company should own which assets, and why
- What the risks of trading in the same entity as the holdings are
- How the rules on control and group membership apply to the structure
- What records and filings a mixed structure requires
This page is general information. It is not legal, tax or financial advice.
For the basic terms, see what a holding company is. For what this company does, see what we do. To ask a question about a specific situation, use the contact page.
Sources
- Wikipedia, "Holding company": https://en.wikipedia.org/wiki/Holding_company