Companies Act 2013, gives the entrepreneurs great liberty while choosing or registration of any kind of entity for their businesses. There are many kinds of entities like private limited company, public limited company, one person company; limited liability partnership, etc. that have been given under the company law. The concept of a holding company and a subsidiary company is also part of company law. Holding and subsidiary companies can be registered under any of the types of entities given under company law. Many times individuals and organizations who are new in the business world get confused between these two. Hence it is very important to know about the difference between a holding company and a subsidiary company. These companies may have common objectives and goals but they are distinct when it comes to management.
What is a Holding Company?
Under Section 2 Clause 46 of the Companies Act, 2013 holding company has been defined. It is a kind of business whose majority of the ownership is with another business known as a subsidiary business. Such kinds of companies hold more than 50% of the shares of the subsidiary companies. They play a significant role in the management of the other company. It is also known as a parent company as a subsidiary company is subordinate to it.
What is a Subsidiary Company?
Subsidiary companies can be either entirely or partially held by the holding or parent company. Although both are different entities, the holding company plays a significant role in the decision-making procedure of the subsidiary company. Subsidiary companies are also governed by the companies’ law. Such companies don’t have any interference with the management of the holding companies. On the other hand holding companies have inference in the management of the subsidiary company. They play a very important role in the decision-making of the subsidiary company.
Difference Between a Holding Company and a Subsidiary Company
Given below is the list of the key difference between a holding company and a subsidiary company:
Control and Ownership
Control and ownership is one of the most relevant key differences between a holding company and a subsidiary company. The holding company has control over the subsidiary company. In contrast, a subsidiary business functions autonomously under its own management structure despite being partially or entirely owned by the parent business.
Liability
A controlling company’s liability is constrained, as opposed to a subsidiary company’s limitless liability. Only the investments that the holding company has made in the subsidiary companies are subject to liability. On the other hand, the parent company’s assets are not exempt from the subsidiary company’s obligation; they are all included. Liability is one of the key differences between a holding company and a subsidiary company.
Financial Reporting
In India, both the companies that are holding and subsidiaries have different financial reporting requirements. Both have to comply with this requirement. Here the work of a holding company is a little difficult as it has to prepare and submit financial reports of both the holding and subsidiary company. On the other hand, a subsidiary company needs to file only the report itself.
Tax Implications
The tax implications of holding companies and subsidiary companies also differ in India. A holding company may enjoy tax benefits since it can take advantage of the tax breaks provided to its subsidiaries. When it gets dividends from its subsidiaries, it must pay a dividend distribution tax as well. In contrast, a subsidiary business must pay taxes on its individual profits and withhold taxes from any dividends it pays to its parent company.
Regulatory Requirements
In India, there are differing regulatory requirements for holding corporations and subsidiaries. A holding company must abide by the Companies Act of 2013 as well as any additional applicable laws, rules, and regulations. Regular audits, board meetings, and other compliance obligations are also applicable.
Management and Operations
A holding corporation stays out of the day-to-day business dealings of its subsidiaries. It solely exercises supervisory authority and participates in key managerial decisions. In contrast, a subsidiary firm has its own management structure and functions independently, albeit the parent company does have some influence over significant decisions.
Shareholding Pattern
The main difference between a holdingcompany and a subsidiary company is their shareholding. A holding company holds shares of a subsidiary company, but it’s not vice versa. Shares of holding companies are so significant that they can affect the decision-making of the subsidiary company. Also as per the ownership structure and investment size, the shareholding structure may vary
Branding and Identity
A holding company’s subsidiaries may operate under several names and have distinct brand identities. The name of the holding company might not be as well-known as the name of its subsidiary, which might be more noticeable to clients and investors.
Risk Management
A holding company can spread the risk of its investments among a number of subsidiaries in various markets and regions, reducing overall risk. A subsidiary firm, on the other hand, may be subject to the risks associated with its location and industry and its performance may be influenced by a number of external factors.
Given below is the table to simplify the difference between a holdingcompany and a subsidiary company:
| Criteria | Holding Company | Subsidiary Company |
| Definition | Owns a controlling stake in another company | Wholly or partially owned by a parent company |
| Control and Ownership | Controls decisions, owns a majority stake | Operates independently, owned by parent company |
| Liability | Limited liability | Unlimited liability |
| Financial Reporting | Consolidated financial statements | Individual financial statements |
| Tax Implications | Dividend distribution tax | Withholding tax |
| Regulatory Requirements | Comply with laws and regulations | Comply with laws and industry regulations |
| Management and Operations | Supervisory role, major decisions influence | Operates independently, influenced by parent |
| Shareholding Pattern | Majority stake ownership | Multiple shareholders, including the parent company |
| Branding and Identity | May operate under different names | Independent brand identity |
| Risk Management | Spread investment risk across subsidiaries | Exposed to industry-specific risks |
Conclusion
The concept of holding and subsidiary companies seems difficult to many individuals. To make it clear in the current blog the difference between a holdingcompany and a subsidiary company has been discussed in detail. For a better and clearer understanding of the two, it’s important to read about the concepts in detail. The foremost difference between a holdingcompany and a subsidiary company is the controlling authority. Subsidiaries operate more independently under the ownership of a parent company. Holding companies supervise and spread risk, while subsidiaries manage their own affairs and maintain distinct identities.
