What are the disadvantages of holding company?
- Over capitalization. Since capital of holding company and its subsidiaries may be pooled together it may result in over capitalization.
- Misuse of power.
- Exploitation of subsidiaries.
- Concentration of economic power.
- Secret monopoly.
Can a holding company pay salary?
It may be difficult for a corporation to justify deducting a salary paid for an investment holding company that is no longer an active business. The salary tax deduction may be wasted due to low corporate income or lack of deductibility, and the salary could be taxable at a higher rate personally than dividends.
Can a holding company get paid?
It can generate income directly from subsidiaries, or through ownership of wider assets. The holding company will receive dividends from subsidiaries, and may also gain by providing centralized services to the wider corporate group. They also make a profit from selling assets and subsidiaries.