Holding company history

A form of industrial organization designed to hold the stock of other companies. In a typical holding company, the parent company is not an operating unit but simply an administrative one, with the subsidiary companies producing actual goods or services. The use of holding companies is quite common and crosses a wide range of business sectors. The first holding company was organized by John D. Rockefeller as a trust in Ohio, the Standard Oil Trust. The term trust was the immediate predecessor of the term holding company although its aims were the same. In a trust, a company holds the stock of other companies in trust. The original Standard Oil Trust did not have stock as such but trust certificates. The purpose of organizing a wide group of businesses into a trust was to control production and prices. Usually, the trust certificates were held by a small group of directors who effectively controlled large sections of an industry. After Standard Oil was moved to New Jersey in 1899, the holding company began to supplant the trusts.

Ordinarily, holding companies are organized as acquisition vehicles so that other companies may be brought under the same control. They began to grow after World War I as many companies began to expand, often establishing themselves in friendly political or tax jurisdictions. Holding companies may also be organized in order to relocate tax liabilities in friendly jurisdictions or to avoid unfriendly legal jurisdictions. The Standard Oil Company moved its headquarters from Ohio to New Jersey when its charter was challenged by Ohio after incorporation in that state.

In certain industries, holding companies have been regulated. The PUBLIC UTILITY HOLDING COMPANY ACT (1935) and the BANK HOLDING COMPANY ACT (1956) both sought to curtail holding companies in those industries so that they did not circumvent other legislation specifically designed to restrict their expansion activities. Subsequent DEREGULATION eased the original restrictions on many companies established during the NEW DEAL.

After World War II, the CONGLOMERATES also employed holding companies effectively as a means of establishing a portfolio of diverse companies under the same roof. By the 1960s, the holding company was the predominant form of industrial organization used by large companies, since many were multinational, and the holding company was used to establish foreign subsidiaries and other international operations.

See also ANTITRUST; GENEEN, HAROLD S.; GENERAL ELECTRIC; SECURITIES EXCHANGE ACT OF 1934.

Further reading

• Federal Bar Association, Securities Law Committee. Federal Securities Laws: Legislative History, 1933–1982. Washington, D.C.: Bureau of National Affairs, 1983. 
• Stevens, William S. Industrial Combinations and Trusts. New York: Macmillan, 1913.