A holding company is a specific type of company that is not regulated by the Commercial Companies Code. The legal basis for a holding company is the Corporate Income Tax Law.
What is a holding company?
A holding company is a parent company in a holding company, and this means that it has at least 50% of the shares or share capital in a subsidiary. Subsidiaries act as controlled companies to which the parent company (holding company) sets the direction of development, manages the entire holding company and represents the holding company externally. Despite this, the companies within the holding company retain a separate legal personality despite the close capital-ownership relationship.
For a company to be considered a holding company, it must meet several conditions:
- it must have title to at least 10% of the shares in the capital of the subsidiary continuously for at least one year;
- it must not be a company that is part of a tax capital group;
- it must not be a beneficiary of tax exemptions;
- its business activities must be of a real nature.
Parent company and subsidiary
The parent company does not participate in the day-to-day operations of the subsidiaries, but only supervises their activities, even though it owns most of their assets. Nevertheless, subsidiaries and the parent company may be very closely related. One subsidiary may own a trademark, another may have employees, and a third may own real estate. Such inter-company relationships are also beneficial when one of the subsidiaries is in financial trouble, for example, a holding company can use its capital to help its subsidiaries. It can do this by lending to a subsidiary on terms much more favorable than the market.
Examples of holding companies
On the other hand, the companies are not so closely related to each other that they are liable for the rest of the holding company. If a subsidiary goes bankrupt, its creditors cannot make claims against the parent company. This mechanism protects the interests of the holding company and shields it from financial losses and legal problems. The holding company is a specific solution in the Polish market, but it is quite popular. For example, Duracell or Ekipa company operates in this way.