Reasons For The Formation Of Holding Company Or Advantages Of Holding Company

The following are the advantages of the formation of a holding company:

1. Elimination Of Competition

As both companies are managed by the same group, therefore competition between them is automatically eliminated.

2.Separate Accounts And Results

Both companies are maintained their account separately, the profitability and financial position of each company is known separately.

3. Advantages Of Self Goodwill

Both the companies maintain their separate identity and as such they maintain their goodwill separately.

4. Less Investment

The people controlling the holding company need investment as comparatively small amount in order to control the subsidiaries.

5. Carry Forward The Losses

Both companies are maintained their identity separately. in such case, it would be possible to avail income tax benefit by carrying forward the losses and set off future profits.

6. Smooth Supply Of Raw Materials

If a holding company holds different subsidiary companies, each of which performs functions at the different stages of production, the companies, as a whole, will not have to depend upon other companies in their activities from procurement of raw materials.