Q.(a) What is meant by Holding and Subsidiary Company ?

(a) A holding company controls another company (its subsidiary) through majority shareholding or control of the board. (b) Retained earnings are ploughed-back profits (an internal source); lease financing is using an asset for rent without owning it.

(a) Holding and Subsidiary Company (TN HSC Class-11 Commerce syllabus)

• A Holding company is a company that controls another company. As per the Companies Act, a company is a holding company of another if it holds more than half (over 50%) of the other company's share capital, or controls the composition of the other company's Board of Directors.
• The company that is so controlled is called its Subsidiary company.
• The holding company controls policy and management, while the subsidiary continues to have its own separate legal existence. This structure lets one company control several others.

(b) Short notes

(i) Retained Earnings — Instead of distributing the whole profit as dividend, a company keeps back a part of its profits and reinvests them in the business. This is called retained earnings or ploughing back of profits. It is an internal source of finance, costs nothing in interest, requires no security, and strengthens the financial position of the company; it is also called self-financing.

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