The creation of the relationship of holding and subsidiary companies is a form of combination.The procedure involves acquisition of shares in the absorbed company, and not its assets with or without liabilities. The separate legal entity of the absorbed company is, therefore, not disturbed. In other words, the subsidiary company continuous its business as usual because acquisition of controlling interest by another company does not mean its liquidation.
Meaning Of Holding Company
A company may acquire either the whole or the majority of the shares of another company so as to have controlling interest in such a company or companies. The controlling company is known as the 'holding company' and the so controlled company or the company whose shares have been acquired is known as 'subsidiary company' and both together are known as 'group of company'. Holding companies are able to nominate the majority of the directors of subsidiary company. The company gets such right which it purchase more than fifty percent shares of another company. So, the holding company is one which controls one or more other companies either by means of holding more than fifty percent shares in that company or companies or by having power to appoint the whole or majority of the directors of those companies. A company controlled by holding company is known as subsidiary company.
