Notes /
What a holding company is, and how it differs from an operating company
A holding company is a company whose main activity is owning interests in other companies. It does not necessarily make a product or serve customers itself. The companies it owns are usually called its subsidiaries when the holding company controls them.
Holding company and operating company
An operating company is the opposite: it runs a business. It hires staff, sells products or services and earns revenue from customers. A holding company can sit above one operating company or above several.
| Holding company | Operating company | |
|---|---|---|
| Main activity | Owns interests in other companies | Runs a business |
| Typical income | Dividends, interest or gains from what it holds | Sales to customers |
| Typical staff | Few or none | As many as the business needs |
Why people use one
These are the reasons most often given for the structure:
- Separation. Each business sits in its own company, so a problem in one is easier to keep apart from the others.
- One place for ownership. An owner can hold many businesses through a single company instead of holding each one personally.
- Simpler changes. Selling one business can mean selling the shares of one subsidiary.
What it costs
A holding structure adds administration: more companies mean more accounts, more filings and more decisions about how money moves between them. Whether it pays off depends on the situation and on the rules of the country involved.
A note on advice
This note is general information about how the structure works. It is not legal, tax or financial advice. Rules differ by country, so anyone setting up a holding company should ask a qualified adviser.