Advantages
of Holding Company: Following
are the important advantages of holding company:
a)
Easy Formation: The
holding company can be formed very easily. There is no legal formality. Any
company may purchase the majority shares from stock exchange and can become holding
company.
b)
Large Business: A holding company can collect the capital and expand the business
on large scale.
c)
Foreign Capital: The
holding company may also attract the foreign capital for the expansion of a
business.
d)
A Stable Combination: The
holding company is a very stable form of business organization. Its life is not
affected by the disagreement of subsidiary company.
e)
Goodwill: When the
goodwill of the holding company is established in the market, it also improves
the goodwill of its subsidiary company before the public.
f)
Separate Position: The
subsidiary companies can maintain their separate position under this system.
They do not lose their identity.
g)
Control on Production: A holding
company can check the production and adjusts the supply according the demand.
So over production can not take place.
h)
Elimination of Competition: The
holding company eliminates competition due to centralized control over the
subsidiary companies, so it earns maximum profit.
Disadvantages
or Defects of Holding Company: Following
are the main defects of the holding company:
a)
Problem of Monopoly: A holding company tries to create monopoly over the market.
Monopoly is always against the public interest. It fixes higher prices and
consumer suffers a loss.
b)
Unequal Distribution of Wealth: Due to holding companies wealth goes in few hands and society is
divided into two classes, rich and poor. Rich class enjoys all the amenities of
life while poor class faces poverty and hunger.
c)
Costly Management: A holding
company spends a lot of money on the officers and offices. All the units are
managed by the central authority. So it is costly to maintain the proper
control on large number subsidiary companies.
d)
Minority Interest Ignored: The
interest of the minority shareholders is ignored and the members of the holding
company dispose of every resolution for their own interest.
e)
Misuse of Funds: The directors of the company enjoys unlimited powers and they take
undue advantages. They misuse the funds also.
f)
Over Capitalization: There is
always a danger of over capitalization in the holding companies. It is very
harmful for both the companies.
g)
False Reports: Generally
the directors of the company present false reports about the company's financial
position. The true condition of the company no body knows, and due to this
sometimes creditors suffer a loss.
h) Chances of Fraud: In the
preparation of accounts the chances of fraud are bright in company transaction.