Holding companies invest in shares of other businesses and typically have a proportionately large ownership or controlling interest in their subsidiaries. They are not limited to one market and may hold companies in any industry. As a vehicle for businesses to reduce risk, holding companies allow entities of all sizes to operate with less fear of liability.
While traditional investors take into account profit growth and cash flow, holding companies evaluate dividends, their primary source of income. By researching dividend return rates to parent companies, a holding company can determine the financial benefit of investing in a specific business. Depending on the proportion of shares held by the holding company, dividends paid out may be tax-free or eligible for a tax credit.