Holding Company and Trust are two main types of limited partnership and joint stock company. The major differences in both are their structures as well as few other things.
Holding Company: is a company which actually holds shares of other producers and services providers. These companies are not producing goods and services by themselves but they earn a profit this way. Advantages and Disadvantages of holding companies must be considered before setting up.
Trust Company: is a type which administrate things in any company on their behalf. They are not owners – they are just Legally authorized bodies or trustees. Trustor (The owner) gives rights to trustee (Trust company) to invest, estimate, manage and hold things on third party behalf; also known as beneficiary.
Formation
- Its process for formation is very complicated. Consent of the proposed members is necessary for its formation
- A holding company may be formed easily without the consent of its subsidiaries
Management
- It is managed and supervised by the Board of Trustees
- Board of Directors is liable to manage the holding company and its subsidiaries
Objective
- It is formed to create a monopolistic situation in the market. Therefore its objects are illegal and regarded against the welfare of the public
- Its objects are legal. Therefore its activities are not considered against the public interest
Right of Issue
- Trust can issue a trusted certificate to its member’s companies. It has no right to issue any kind of shares certificate
- Holding company can issue the share certificate to its members. It cannot issue trust certificates
Position
- It is a strong form of combination. A member company cannot easily come out of the trust
- It is a comparatively loose form of combination. The holding company can easily give up control of its subsidiaries
Centralized Control
- In the trust, the member companies surrender their shares to the Board of Trustees. Thus they secure the centralized control and become the “Beneficiaries” of the trust agreement. It has pros and cons too.
- Majority of the shares of limited company must be secured by holding company in order to obtain centralized control
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.
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