NOTES ABOUT HOLDING COMPANY

1. Industrial Partner- one who contributes only his industry or personal service. It is governed by
the law on partnership under the Civil Code. It is different from a corporation which is governed
by the Corporation Code. There are many distinctions between a partnership and a corporation
such as in terms of manner of creation, number of incorporators, powers, management, and
transferability of interest. There are also advantages and disadvantages from one to the other.
Nota bene: Pertinent provisions of the Civil Code on industrial partner:
ARTICLE 1789. An industrial partner cannot engage in business for himself, unless
the partnership expressly permits him to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.
ARTICLE 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (1689a)
ARTICLE 1799. A stipulation which excludes one or more partners from any share in
the profits or losses is void.
ARTICLE 1816. All partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted, for the contracts which
may be entered into in the name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract. (n)
* First thing to do is to determine what business vehicle will fit to the intended purposes of the
business undertaking to be conducted bearing in mind all the legal consequences between a
partnership and a corporation.
* Based on the foregoing, an industrial partner should first become a stockholder or investor
then the corporation may execute an agreement between the would be industrial partner and its
board of directors concerning the formers participation only as an industrial partner.
2. Parent or Holding Corporation- one which is so related to another corporation that it has the
power either, directly or indirectly to, elect the majority of the directors of such other corporation.
* A holding company is a corporation that is organized for the purpose of owning stock in other
corporations. A company may become a holding company by acquiring enough voting stock in
another company to exercise control of its operations, or by forming a new corporation and
retaining all or part of the new corporation's stock. While owning more than 50 percent of the
voting stock of another company ensures control, in many cases it is possible to exercise
control of another company by owning as little as ten percent of its stock.

Three basic types of holding companies:

1.
Investment Holding Company- A pure holding company that is non-operating and exists
solely to invest in and hold the voting shares of its subsidiaries. This type of holding company
derives its income from the dividends earned from its ownership of the shares of its subsidiaries
and from any gains realised from other investments.
2.
Operating Holding Company- A general or operating holding company that earns its
income from selling goods and services in addition to the income derived from its ownership of
subsidiaries.
3.
Managerial Holding Company- A pyramid holding company that owns controlling interest in
its subsidiaries with less invested capital than the two other categories.
* It is common to establish a holding company to manage the investment rather than running the
business itself. Having a subsidiary to run a portion of the entire business helps it focus on its
core rather than having to worry of fund management and other lines of businesses.
* A wholly owned subsidiary is one in which 100 per cent of the voting stock is owned by the
holding or parent company. When less than controlling interest is owned, such companies are
usually referred to as associated companies.
* The terms affiliate and associate are used synonymously to describe a company whose parent
only possesses a minority stake in the ownership of the company.
* A subsidiary, on the other hand, is a company whose parent is a majority shareholder.
Consequently, in a wholly owned subsidiary the parent company owns 100% of the subsidiary.
As stated above, a subsidiary is a legal entity that is majority owned by a parent company, i.e.
51% or more of the voting stock. A subsidiary is also sometimes referred to as a child
company. Wholly-owned subsidiaries are 100% owned by the parent company. A subsidiary
can also have controlling interests in its own set of subsidiaries.
* If a 100 percent interest in another company is acquired, that company is a referred to as a
wholly owned subsidiary of the holding company. The holding company may also elect to
acquire less than 100 percent ownership, but own majority control of the other entity so it can
oversee the operations of the company.
* In practice, there are no limitations on the number of investors in a holding company as long
as it is within its authorized capital stock indicated in its articles of incorporation.
* Secondary investors shares- Unissued capital stock that is not issued or subscribed. It does
not vote and draws no dividends.