Disadvantages Of Holding Company

The following are the main disadvantages of holding companies:

1. Forced Appointment Of Directors

The subsidiary companies may be forced to appoint persons of the choosing of holding companies as the directors or other officers at unduly high remuneration.

2. Speculation In Shares

By manipulation of accounts, directors may speculate in the shares of the subsidiary companies if such shares are listed in the stock exchange.

3. Creation Of Secret reserves

Secret reserves may be created by dishonest directors to the detriment of the minority interest.

4. Difficulties In Valuation Of Stock

Difficulties may be faced for valuing stock when it consists huge quantities of inter-company goods.

5. Fear Of Mismanagement

When a group has a good number of subsidiary companies and managerial ability is limited, there may be mismanagement resulting into damage the group as a whole.

6. Fraud In Inter-company Transactions

Inter-company transactions are often entered at fanciful and unduly high or low price in order to suit the holding companies.