What is a Holding Company?
A holding company is a vertical form of consolidation of commercial companies, and its creation does not require a contract between the participants or their special consent. It is known as an organization consisting of a parent company and subsidiary companies.
The holding company is referred to as the parent company and is the controlling entity. It may engage in its own production or commercial activities, but this is not mandatory.
The aim is for the parent company to build a network of other companies, which can number even in the hundreds. The holding company aims to participate in these companies or manage them in some form.
Requirements and Structure of a Holding Company
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The parent company must have subsidiaries and may:
- participate in them by owning a part or the entire capital of the subsidiary company
or
- participate in the management of the subsidiary company.
It often happens that the company participates both in the capital and the management of the subsidiary.
- There are no restrictions on the number of subsidiary companies and their branching. Each subsidiary can be a parent company to other subsidiaries, which have their own subsidiaries, and so on. All these companies are part of the holding and are controlled by the company at the top.
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The holding company can only be a capital commercial company, that is, one of the following:
- joint-stock company (JSC),
- limited liability company (LLC),
- limited partnership with shares (LPS).
- The capital company must be registered explicitly to participate in other companies through ownership and acquisition of shares and interests in them, or alternatively, to participate only in their management.
- The company must have a real right to a share of the capital of the subsidiaries or the right to participate in their management bodies.
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Holding Through Capital Participation
The parent company can participate in the subsidiary through capital. It is then considered a partner or shareholder in the subsidiary company.
For a holding to exist, at least 25% of the capital of the company must be directly contributed to the subsidiary company.
Holding Through Control
The parent company does not have to be a partner or shareholder in the subsidiary for a holding structure to exist. If the company owns or controls (in)directly 25% of the shares or interests, or can directly or indirectly appoint more than half of the members of the board of directors, then a holding exists.
„Holding“ as a multicorporate structure - Explanations and Important Aspects
In practice, there is a difference between a “holding” and a “holding company”.
“Holding“ is a multicorporate structure which is not personified, it is not a legal entity, a type of commercial company, or a trader. It is not an unincorporated civil partnership, as it is not created with a contract for joint activity like a consortium.
A holding is an organized structure, composed of several corporations. It is not a legally distinct organizational form.
The holding cannot be registered as a type of company; only the holding company can be a JSC, LLC, or LPS. Only the commercial companies that are part of the holding are subject to registration.
Registration of a holding as a structure is not provided. A holding cannot bear rights and obligations. The subjects of legal relations are the parent company and the subsidiary companies. When concluding contracts and filing claims, third parties must know which specific company they are dealing with.
Commercial transactions can only be concluded with a holding company when it is explicitly stated in its business activity that it carries out commercial or production activities.
Its business activity can be:
- acquisition, management, evaluation, and sale of shares of Bulgarian and foreign companies;
- acquisition, management, sale of bonds;
- acquisition, evaluation, sale of patents;
- financing companies in which the holding company participates.
It is important to know that the actual owner of the entire enterprise is the parent company, but from a legal standpoint, each commercial company within the group is the legal owner of its own assets. Each one is solely responsible to its creditors for its obligations.
Restrictions
A holding company cannot:
- participate in a company that is not a legal entity;
- acquire licenses not intended for use by the companies it controls;
- acquire real estate not necessary for its functioning.
Conclusion
This article summarizes the most important information about a holding company and its structure, as well as its main aspects and restrictions.
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