What does holding mean?
What does holding mean?
A holding company is a commercial entity that usually has a limited liability share structure. Typically, a holding company does not manufacture anything, sell any goods or services, or engage in any other business operations; Rather, the holding company invests in other companies' shares. For example, Fars and Khuzestan Cement Company is a cement industry holding company. Or the Persian Gulf Petrochemical Industries Company, which is a petrochemical and chemical holding, whose shares are traded under the Fars symbol on the stock exchange and have had the highest market value in many cases. And it is one of the most influential stocks in the total stock market index.
Other well-known holdings of Al-Fajr Holding and accepted in Iran Stock Exchange include Behshahr Industries Development Holding, Toka Foulad Investment Holding, Ghadir Investment Holding, Darupakhsh Holding, etc.
What is the structure of holding companies?
The holding company controls the activities of its subsidiaries through the ownership of shares, and it does not directly conduct business activities. The holding company owns more than 50% of the shares of its subsidiary companies, and if it engages in activities other than control, it is not considered a holding company and is known as an investment company.
Holding companies have different names such as parent company, holding company, controlling company, owner company, shareholder company, main company, etc.
Subsidiary companies, all or more than half of their shares are owned by the parent company and are different from affiliated companies. For example, affiliated companies cooperate on the basis of a contract and the investment of the parent company is less than 50%.
Management shares have different definitions; But usually between 16% and 50% and often more than 33% are considered as management shares. Most of the investment companies established in Iran, such as National Development Group Investment Company (Vebank), Sanat and Mine, Parsian Oil and Gas, Ghadir, Mines and Metals, etc. act as holding companies in part of their investments. they do.
Some other companies like Siman Fars (Sefars) are also holding companies that manage other companies. Some companies, such as Bo Ali Investment, buy and sell shares of companies with the intention of profiting from the stock growth process, and therefore do not have holding activities.
Types of parent companies
The controlling company: spends part of its capital to buy shares in other companies and also conducts commercial operations.
The holding company: spends all its capital to buy other companies and does not have commercial activities.
Companies that are fully owned by a holding are called "wholly owned subsidiaries". Although a holding company owns the assets of other companies, it often only plays a supervisory role in these companies. Therefore, although it may monitor the decisions of the company's management, it does not actively participate in the implementation of daily activities in these subsidiaries.
A holding usually operates only with the purpose of controlling other companies. On the other hand, holding companies may also own assets such as real estate, patents, trademarks, stocks, etc.
and have at their disposal.
What does holding mean?
Advantages of holding companies
Holding companies have the advantage of protection against losses. If a subsidiary goes bankrupt, the holding company may experience capital loss and net worth reduction; However, the holding company is not legally required to pay the creditors of the bankrupt company.
As a result, as an asset protection strategy, a parent company may position itself as a holding company and create subsidiaries for each of its business lines.
For example, one subsidiary may own the parent company's brand name and trademarks, while another subsidiary may own its real estate. This tactic is intended to limit the financial and legal liability of the holding company (and its various subsidiaries). Also, the holding company may reduce its tax cost by basing the strategy in some of its business segments in jurisdictions.
What is a holding company?
The holding company uses its own resources to support the subsidiaries to lower the cost of operating capital required. The parent company can give the loan commitment on behalf of the subsidiary company. Ultimately, this can help companies get financing at low interest rates, compared to what they would have to finance themselves. After the financial support of the holding company, the subsidiary company significantly reduces its risk of default.
Companies can become holding companies in two ways. One has the right to vote in another company by acquiring enough shares, which makes the company have the power to control the activity of the company in question. The second way is to create a new company from scratch and then retain all or part of the new company's stock.
Although owning more than 50% of another company's voting stock guarantees greater control, a parent company can control the decision-making process even if it owns only 10% of its own shares. If the parent company controls all the shares of the other company, that organization is called a wholly-owned subsidiary of the parent company.
Types of holding companies
There are different types of holdings, some of which are mentioned below:
- Holdings that are made up of a large company: such as Iran Khodro
- Product holdings: All of its companies produce a product.
- Supply chain holdings: Supply chain holdings mean that all its companies perform various activities in order to achieve a common goal. Such as oil holdings that undertake operations from exploration to distribution.
- Mixed holding: It is made up of companies with different activities.
Difference between holding company and investment company
Holding companies, unlike investment companies, have a management claim and tend to participate in their internal decisions and policies by buying part of the companies' shares.
For example, when a car holding company allocates part of its capital to buy shares in a car manufacturing company. As a rule, he has plans for the management of that company or believes that exerting influence on the internal policies of that company can provide more and better economic interests of the holding company. Therefore, it can be said that a holding company considers itself an expert in the field of investment companies.
The main difference between an investment company and a holding company is that a holding company is established specifically to own and operate a business activity; While the investment company is created as an investment vehicle. Holding companies buy whole or partial shares in other companies for the purpose of managing them, while investment companies mainly invest in publicly traded securities and financial derivatives. And they rarely invest in a controlling stake in a private company.
Although a holding company may buy another company with the intention of improving it and eventually selling it for a profit, it holds the company for at least a few years. Investment firms, on the other hand, often buy stocks and sell them after a while to maximize returns.
Registration of commercial holding
Join us to introduce you to the registration of the commercial holding.
The commercial holding consists of several companies that operate in the field of commerce. The main feature of these companies is solidarity and dependence, this solidarity can be in different fields.
Business holding activities
- Investor advice
- Importation
- Export
Duties of the board of directors of the commercial holding
- Approving the financial, transactional and employment regulations of subsidiaries.
- Appointment of authorized representatives to participate in the general assembly of subsidiaries.
- Examining and deciding on any type of partnership and investment of subsidiary companies
- Developing and proposing investment criteria for subsidiaries
- Examining the proposal to amend or change articles of the articles of association or liquidation of subsidiary companies.
- Definition of subsidiary company in the articles of association.
- Inclusion of the list of specifications related to the company name, company center, capital and scope of activities of subsidiaries as an attachment.
- Necessary documents for registration of commercial holding
- Announcement of the establishment of the parent company
- Letter of representation issued by the parent company to register the holding company
- Identification documents, including copies of the original national identity card and birth certificate of the board members of the holding company
- Identification documents including national card and birth certificate of the board members of the holding company
- Certificate of no bad background for the parent company representative and other members of the board of directors and company inspectors
Procedures for registering a commercial holding
- Completion of the request form to be converted into a parent company (holding) with attachments
- Completing the profile questionnaire of the candidate for the position of managing director or membership in the board of directors of a financial institution
- After sending the documents to the supervision of financial institutions, if the documents are perfect and the necessary conditions have been met. The organization will proceed to issue the license.
- The applicant must register the company in the company registration authority within the prescribed time frame.
The parent or holding company can be registered in the form of public shares, special shares or limited liability.
The minimum capital required to register a commercial holding
The minimum capital of the holding company is 50 billion rials and the holding company is 100 billion rials.
Procedures for obtaining a license for the registration of a commercial holding company
Obtaining a holding license, like many companies, has its own stages.
Obtaining approval in principle for the establishment of a holding company:
- In the first stage, the applicant of the company first sends his application based on the application form along with the candidate profile questionnaire form to the management department for supervision of financial institutions of the Securities and Exchange Organization.
- In the second step, the Stock Exchange and Securities Organization has checked the documents you sent. If your documents are complete and you meet the necessary conditions, he will issue you a basic consent form for the establishment of the holding company.
Obtaining a license to start the activity of a commercial holding
After the letter of approval for your registration is issued, you must send your documents to the office for registration.
After registration, resend the final form to the organization so that the organization has a copy of your registration number and registration documents.
After seeing the registration documents of your company, the organization has given you permission to start your activity and you are allowed to start working from now on.
Conclusion
In this article, we learned about the concept of holding companies and their difference from investment companies. In short, the main purpose of the holding company is to buy shares of companies, manage and monitor the activities of that company; But investment companies buy and sell company shares more often just to benefit from the increase in the price of the company's shares and to receive cash profit from them. In the capital market, there are many holdings in the field of chemical products, cement, mining, etc.
