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Holding company, parent company and subsidiary: the terms
Reviewed by Expert review: Claude (AI, Legal Compliance Checker) with cited sources
A holding company owns shares or other interests in other companies, and holding those interests is its main activity. A parent company is a company that controls another company. A subsidiary is the company that is controlled. The three words describe one relationship seen from different sides, so a holding company is often also a parent, and the companies it controls are its subsidiaries.
The short answer
"Holding company" describes what a company does: it holds interests in other companies. "Parent company" describes a relationship: one company controls another. "Subsidiary" describes the other end of that relationship. The words overlap, which is why people mix them up. In some countries the term "holding company" is used where another country would say "parent company".
What a holding company is
According to the Wikipedia article on holding companies, a holding company's primary business is holding a controlling interest in the securities of other companies. It generally does not produce goods or services itself, although the article notes that a holding company may also carry on trade or other business activities of its own.
A holding company can own one company or many.
What a parent company is, and when the words overlap
The article describes a parent company by control over another company, typically through voting power. It also says the definition of a parent company normally differs across jurisdictions.
The legal test differs by country. In the United Kingdom, the Companies Act 2006, section 1159 says that one company is a "subsidiary" of another, its "holding company", if that other company:
- holds a majority of the voting rights in it, or
- is a member of it and has the right to appoint or remove a majority of its board of directors, or
- is a member of it and controls alone, under an agreement with other members, a majority of its voting rights.
The same section also treats a company as a subsidiary if it is a subsidiary of a company that is itself a subsidiary of the other company, so the test applies along a chain of companies. Section 1159 also says a company is a "wholly-owned subsidiary" of another if it has no members except that other company (and its wholly-owned subsidiaries or people acting on behalf of that other company or its wholly-owned subsidiaries). The section says Schedule 6 of the Act contains provisions explaining expressions used in it; that schedule was not read for this page, so the detail of how rights are counted is not covered here.
So a holding company that controls other companies is, in plain terms, a parent to them. The Wikipedia article adds that a holding company may also run a business of its own, so the two labels do not exclude each other.
What a subsidiary and a wholly owned subsidiary are
A subsidiary is a company that another company controls. The control may come from owning most of the voting shares, from the right to appoint the board, or from an agreement, as the UK test above shows.
When the parent owns all of the subsidiary, the subsidiary is called a wholly owned subsidiary. The Wikipedia article describes this as the result of a parent company wholly owning another company. The UK Act's wording is that the company has no members except the other company.
Owning all of a company is not required for it to be a subsidiary. The term describes control, not full ownership. A company with a majority of its shares held by another is a subsidiary without being wholly owned.
Tiered structures: a holding company that is itself a subsidiary
Holding companies can sit inside other holding companies. This is called a tiered structure. The Wikipedia article notes that a holding company can itself be a subsidiary in such a structure.
A simple illustration, with invented company names:
| Company | Role in the chain |
|---|---|
| Alpha Ltd | Parent of Beta Ltd, and at the top of the chain |
| Beta Ltd | Holding company, and a subsidiary of Alpha Ltd |
| Gamma Ltd | Operating company, and a subsidiary of Beta Ltd |
Here Beta is a subsidiary of Alpha and a parent of Gamma at the same time. Gamma is a subsidiary of Beta, and through Beta it is also a subsidiary of Alpha. The word "subsidiary" describes Gamma in each step of the chain, while "parent" describes Alpha and Beta depending on which step you look at.
This is why one company can be called a holding company, a parent and a subsidiary without contradiction. The label depends on which relationship is being described.
Why the words differ between countries
The terms are not used the same way everywhere. The Wikipedia article states that in some jurisdictions holding companies are called parent companies. The legal tests for when one company is a subsidiary of another also differ, so the same group of companies can be described differently depending on where it is registered.
For that reason, a definition from one country should not be carried over to another without checking the local rule. The company registry and the statute book of the country concerned are the places to look.
Where to read the official rules
- The UK Companies Act 2006, section 1159 sets out the definition of subsidiary and holding company for the United Kingdom.
- The Wikipedia article on holding companies gives an overview and links to the statutes it summarises. It is a secondary source, so read the statutes themselves for any decision.
This page explains the terms. It is not legal, tax or financial advice. Anyone who needs to decide how a group of companies should be organised should ask a qualified adviser in the relevant country.
For the broader picture, see what a holding company is and what we do.
Sources
- Wikipedia, "Holding company": https://en.wikipedia.org/wiki/Holding_company
- UK Companies Act 2006, section 1159: https://www.legislation.gov.uk/ukpga/2006/46/section/1159