Do you ever wonder if a company could exist without selling anything whatsoever but still make money? You might have thought it wasn't possible because a business has to drive sales to make a profit. Have you heard of holding companies? A holding company doesn't partake in the selling of products or services; so, how does it make money?

Find out in this article what a holding company is.

What does a holding company do?

Holding Companies are usually either a corporation or limited liability company that isn't involved in any form of buying and selling (ie service or products). This drives the question, what is a holding company about, and how does it make its money? A holding company is an entity that holds ownership of assets or stocks in other businesses that are directly involved in buying and selling. The holding company owns controlling stock in different companies, which means they can participate in its decision-making. The other companies that have direct involvement in buying and selling are called operating companies.

How does the holding company work?

The holding company has a variety of uses; companies from large or small businesses to startups and individual entrepreneurs can use the holding company services. The two ways that a holding company can have rights over another company are:

Owning 100% of the company; a holding company can build corporations from the ground up and then retain every right to the company.

It owns enough voting shares or stocks that will gain the holding company control in the operating company. The percentage may vary depending on the number of shareholders present in the company. Owning stocks (ie, more than 50%) guarantees more control.

You can refer to the holding company as the mother company and to the operating as a subsidiary. The subsidiary has a management team that runs the day-to-day activities of the operating company. The holding company's role is to oversee how the subsidiary's operations are run, and they also have control rights over the decision-making processes.

They get to decide who is among the board of directors and LLC managers. They can also choose whether or not to merge or dissolve the company. If the holding company possesses all the voting rights or shares, the operating company has only one owner, which is the holding company.

How does a holding company make money?

Holding corporations are usually affiliated with large businesses with many small units. Let's take a look at this scenario; if company A is a beauty company that sells all sorts of products ranging from wigs, makeup, press on nails, etc., This operating company has subunits, so instead of making it into a corporation with a different division, a holding company could be used to structure it better. The business units would fall under various subsidiaries, and the holding company would own control dividends.

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