HOLDING COMPANY

If one company controls the other company by the way of acquire the
share of the other company is know as holding company. The must
acquire more than 51% share of the other one company is known as
holding company. The holding company does not acquire the assets of
the other company but it acquire only share of the other company .As
only share are transferred from the old shareholder to the new holder.

Holding company is a company which has a control over another

company by either of the following
1. Controls the board of directors
2. Holds more than in nominal value of its equity share capital
SUBCIDARY COMPANY
A company controlled by a holding company is known as subsidiary
company. By following way

1. Controlled the board of directors

2. Holds more than in nominal value of its equity share capital by
other company any.

TYPES OF HOLDING COMPANY

Wholly- owned
When all the share of the subsidiary company are held by its
holding company the subsidiary is called as wholly-owned holding
company
Partly- owned
• When more than 50% share but not 100% of the subsidiary
company are held by its holding company the subsidiary is called
as partly-owned holding company
ADVANTAGES OF HOLDING COMPANY
1) Subsidiary company maintained their separate identity.

2) The public may not be aware the existence of combination among

the various company.

3) Holding company need not to be invest entire amount in the share

capital in subsidiary company still enjoy controlling power in such
company.

4) It would be possible to carry forward losses for income tax purposes.

5) Each subsidiary company prepares its own accounts and therefore
financial position and profitability of each undertaking is known

. 6) Holding company may additional acquired or disposed of and the

shares in subsidiary company in market whenever if desired.

DISADVANTAGES

1) There is a possibility of fraudulent manipulation of accounts.

2) Intercompany transaction may not be at fair prices.

3) Minority shareholders interest may not be properly protected.

4) The accounts of various companies may be made upon different

dates to, manipulate profit or financial position of Group companies.

5) The shareholders in the holding company may not be aware of true

financial position of subsidiary company.
6) Creditors and outsiders shareholder in the subsidiary company may
not be aware of true financial position of subsidiary company.

7) The Subsidiary Companies may be force to appoint person of the

choice of holding company such as Auditors, Directors other officers
etc. at in dually high remuneration.

8) The Subsidiary Company may be force for purchases or sale of

goods, certain assets etc. as per direction of holding company.

REASON FOR MERGER FAILURE

Thousands of companies are bought and sold every year. Many of these
transactions leave the buyers and sellers frustrated, because either
they don’t know how the process works, or because the results are
below their expectations. Some common reasons are:

VALUATION

The numbers and assets that look good on paper may not be the real
winning factors once the deal is through

The theoretical valuation v/s the practical proposition of future benefits

may vary.

NEGOTIATIONS ERRORS

Cases of overpaying for an acquisition (with high advisory fee) are also
rampant in executing M&A deals, leading to financial losses and hence
failures

INADEQUATE DUE DILIGENCE

Due Diligence is a crucial component of the merger and acquisition
process as it helps in detecting financial and business risks that the
acquirer inherits from the target company

Inaccurate estimation of the related risk can result in failure of the

merger

INTEGRATION DIFFICULTIES

Companies very often face integration difficulties, i.e., the combined

entity has to adapt a new set of challenges in the changed
circumstances

To do this, the company should prepare plans to integrate the

operations of the combined entity

If the information available on related issues is inadequate or

inaccurate, integration becomes difficult

POOR STRATEGIC FIT

A major challenge for any M&A deal understands of strategic intent. A

careful appraisal can help to identify key employees, crucial projects
and products, sensitive processes and matters, impacting bottlenecks,
etc. Using these identified critical areas, efficient processes for clear
integration should be designed, aided by consulting, automation or
even outsourcing options being fully explored

MISREADING THE NEW COMPANY’S CULTURE

It is not necessary that if two companies are in the same industry then
they will have the same culture. So, it’s important to understand the
other company’s culture and will be far better if they enter the new
company’s offices carrying themselves with the four H’s: honesty,
humanity, humility, and humor

GEOGRAPHICAL CONSTRAINTS

Geographical factor plays an important role usually during cross border

mergers. The logic is that international M&A are particularly difficult to
integrate because they require “double layered acculturation”,
whereby not only different corporate cultures, but also different
national cultures have to be bridged.

EGO CLASH

When a merger is planned, it is crucial to evaluate the composition of

board room and compatibility of directors

Specific personality clashes between executives of the two companies

may occur

HR ISSUES

Mergers and acquisitions are identified with job losses, restructuring

and the imposition of new corporate culture and identity. This can
create uncertainty, anxiety and resentment among the company’s
employees. These HR issues are crucial to the success of M&A.