Question

explain the advantages and disadvantages of a holding company ​

Answer 1

Answer:There are certain advantages to acquiring a controlling interest in a subsidiary as a holding company.However, there are also some disadvantages associated with holding companies model.

Explanation:

Advantages

• The capability of controlling operations with a small percentage of ownership thus lesser up-front investment.
• Holding companies can take risks through subsidiaries, thus limiting this risk only to subsidiaries instead of placing the parent company on the line.
• Expansion can occur through the way of simple stock purchase in public market, which shuns the difficult step of obtaining approval from the subsidiary’s board of directors.

Disadvantages

:

• If less than 80% of the stock is owned by the parent company, the holding company pays numerous taxes on the federal, state, as well as local levels.
• A holding company can be required to dissolve more easily as contrasted to a single merger operation.
• Moreover, there are possibilities of a holding company to expand through the use of debt or leverage, building an intricate corporate structure which can include unrealized values, thus creating a risk if interest rates on obligations or the evaluation of assets posted as guarantee for loans alter radically.