Saturday, October 24, 2015 9:11:53 PM
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A holding company's main business is owning other businesses.
A conglomerate is a business that owns other businesses either through creation of subsidiaries or acquisition.
There's basically only 1 major difference between a conglomerate and holding company but otherwise appear very similar. That's liability. Several minor differences.
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Example conglomerate: You are DMCeng Corp and your business is producing Tricket 2000x which is used for communication. Your business is booming and you decide to purchase WithCatz Bank and rename it DMCeng Bank.
Two totally separate sectors and you reorganize as a conglomerate corp known as DMCeng.
Business is booming for both your communication and bank business and you decided to open DMCeng Oil. DMCeng Oil started from scratch as in you used the profits from DMCeng Corp and DMCeng bank to purchase all new oil equipment, hire new all new employees, etc. Now your conglomerate is comprised of your main company DMCeng Corp and its two subsidiaries DMCeng Bank and DMCeng Oil.
3 companies that produces products or services (Communications, financial and oil)
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Example holding company: You are DMCeng and you have money. You set up a holding company for the sole purpose of buying other companies or being majority shareholder (controlling interest) in another company.
You use money to buy WithCatz Bank and Evintos Oil.
Your holding company now only has 2 subsidiaries. Those two subsidiaries are the only thing that produces products/services.
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The big pro/con of a conglomerate is that if one subsidiary fails, all the subsidiaries including parent corporation will suffer financially. At the same time if 1 subsidiary is failing, the other subsidiaries that are succeeding can prop up the failing subsidiary financially.
For a holding company - if DMCeng's Holding's subsidiary Evintos Oil fails, it would not affect WithCatz Bank financially. Limited liability among subsidiaries.
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Real world example is General Electric which is a conglomerate and Berkshire Hathaway which is technically a holding company.
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