How do holding companies make money?

Question

I've heard of companies that basically own other private companies or buy majority shares in public companies. Sometimes their holdings are is wholly different industries. How do these companies profit if their resources and knowledge are stretched thin? How do they make money off of majority share of public companies? Can any one own two different companies and put it under their head parent company?

What I'm really getting at is how a holding company such as berkshire hathaway can get revenue in all sorts of fields such as insurance and textiles milling without an exhaustion of resources and capital. I guess hire qualified management and just make sure they're turning a profit and running the business right?

Answer 1

as you may have heard, very few US corporations pay any income taxes. ever wonder why? it's because a great deal of corporate finance has to do with making sure there are no taxable profits. that's part of what holding companies are for.

your question seems naive because it assumes that the point of a corporation is to make money. businesses make money, and that money gets paid out, under our system, mostly in the form of large executive salaries. the point of the corporation is to avoid two things, in the process of doling out millions to the principals (who DO pay income taxes, though often not much as a percentage of their income): one is liability, and the other is taxes.

no charge for the free lesson in reality

Answer 2

2

Answer 3

I believe your question refers to conglomerates, which many corporations today are.

A conglomerate has many smaller corporations that it controls through various set-ups, and many of these corporations that are part of the conglomerate are not necessariilly related business interests.

A perfect example is General Motors that is also like a bank with G.M.A.C. as a division.

Holding companies make money when the sum total of all their holdings are making money.

If some lose money, but the majority are making money, then the holding company is doing fine as a corporation.

Many times, parts of the corporation do better in some years vs. other years due to what becomes in favor.

Last year the home builders were doing gangbusters. Now they are in sad shape with too much unsold inventory.

However, the comodity based corporations are now doing gangbusters.

So you see, the economy shifts from year to year.

Answer 4

A Holding company has investors. As long as the investors are making money above normal market shares, they will continue to invest. Holding companies also use some businesses as losses for tax write offs. Plus a company of this nature will buy and sell quick to turn profits.

Answer 5

You're right, holding companies make make money only if the companies they "hold" (own) make money. Some conpanies (GE of some years ago, for instance) buy other companies and don't hold them but bring them into the existing company so there is only one name. Others, Berkshire Hathaway is a good example, just let the companies they've purchased exist as a separate entities.
The management is the bugger and Buffett has done wonders at keeping his companies profitable--mostly he says, by letting them run themselves. Take a look at stuff by Jim Collins of Colorado for more on the subject.

Answer 6

A holding company or parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.

Strictly speaking, the term "holding company" might be used to describe any company that owns a majority of shares in another company. Usually, though, the term signifies a company which does not produce goods or services itself, but, rather, whose only purpose is owning shares of other companies (or owning other companies outright). Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. A holding company makes money through the dividends issued by the owned or controlled companies.

Answer 7

Holding Companies basically own the companies related to them but do not necessarily generate meaningful income. These companies do not have to related in terms of business or function. Usually, a Holding Company will supply the general Management strategies for the enterprise as a whole, but will also retain functions such as Legal, Human Resources and IT.
None of these functions are profit generating but are in fact quite vital to the corporate body as a whole. A Holding company will charge back to their subsidiaries, fees for the services they provide to the subsidiaries. They could also own the investment portion of the corporate body whereby they are making the profits ( hopefully ) on the earnings of the Enterprise in general.

Answer 8

You're exactly right about Berkshire. Warren Buffet likes to hire and hold on to good managers and just keep out of their way. Berkshire itself functions mostly as an allocator of capital (Buffet's specialty). If the operating companies cannot reinvest their earnings back into the business at returns above his hurdle rate, then they turn over the earnings to Berkshire, which then invests them or sits on the cash until a suitable investment can be found.

Answer 9

Holding companies do not use thier own resources to operate the companies they buy. and the buying of the companies are mostly from thier investors and profits from whateever thier main business is. what they do is buy controlling shares of common stock with voting privelages. meaning they attempt to be the largest shareholder in a company they try to take over wich gives them the power to influence company policy. In the event a total take over they will most likely rerange management with thier own people.

Answer 10

I would have to see some proof, although I wouldn't be surprised to find out. After all, a few of Obama's fundraisers were investigated for fraud back in 2008. Coincidentally, up in New York, a few Democrat politicians went to jail for using absentee ballots to rig an election. The workers were all associated with the now defunct ACORN.