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What Are The Disadvantages Or Drawbacks Of Holding Company?

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Haider Imtiaz Profile
Haider Imtiaz answered
The following are drawbacks of the holding company:
1. Complexity and costly managements. The management of holding company and its subsidiaries is complicated matter. All the units are managed by central authority. It requires money, time and energy to organize this form of combination so it is costly to maintain the proper control of large number of subsidiary companies.

2. Growth of monopoly. Holding company tries to have monopolistic control over the market. Monopoly is always considered against the interest of general public. Small industrial concern and public have to pay for the existence and efficiency of the monopolists. It thus becomes the cause of the suffering of the people and dissolution of the small business units.

3. Chances of fraud. There is great possibility of fraud in company transaction and preparation accounts under this arrangement. Some individuals manipulate with dishonest directors and take undue advantages of their influences.
4. Inefficient management. Skilled and trained hands are not available to manage the subsidiary companies. Generally the management of subsidiary is left in the hands of inefficient and incompetent persons. Therefore they are unable to perform the affairs of their business when the volume increases unduly.

5. Exploitation. As voting powers are in the hands of the members of the holding company, they dispose of every resolution for there own interest. Thus the interest of the minority share holders is ignored and this situation exploits the subsidiaries against the holding company.
Mark Steel Profile
Mark Steel answered
The only serious disadvantage is possible dual taxation if you remove money from the holding account. Let's say your company grosses $40,000 and you drop it into holding. You need $5,000 for personal use. Your company now owes tax on that $5,000, and when you take it for your personal use, you owe that tax, as well. If you don't explicitly need a holding company, the double tax penalty makes it a bit problematic --- if you can get away with it, look into a small business (sole proprietor) corporation or small business LLC.

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