A holding company holds the shares of its subsidiaries and manages group companies. Generally, each subsidiary maintains its independent legal personality even after business integration. Hence, the ties between each company are weaker than in the case of a merger between companies, which will be discussed later.
There are two types of holding companies: operating holding companies and pure holding companies. A business holding company is a company that owns shares in its subsidiaries and also conducts its own business.
On the other hand, a pure holding company is a company whose sole purpose is to hold the shares of its subsidiaries. In other words, a business holding company’s purpose is to control group companies and business operations, whereas a pure holding company’s purpose is only to control group companies.
Difference Between Business Integration And Merger
Mergers are an M&A method similar to business integration, but some differences exist.
First, the number of companies after establishment is different. In the case of business integration, in principle, a new holding company will be established, so the total number of group companies will be greater than the number of affiliated companies. For example, if Company A and Company B integrate their businesses, a holding company, Company X, will be established, and Company A and Company B will become affiliated with Company X.
In other words, while there were initially two companies (Company A and Company B), with the new establishment of Company X, the total number has increased to three.
However, in the case of a merger, whether it is an incorporation-type merger or an absorption-type merger, the overall number of companies decreases. Specifically, in the case of a new merger between companies A and B, a new company becomes.
Additionally, Company B will disappear if Company A merges with Company B, and Company A will become the surviving company, leaving only Company A (one company).
There are also other differences, such as unifying systems is not necessary in business integration but is necessary in case of a merger, and while in business integration, the corporate status of each company remains, in the case of a merger, the corporate status of all companies other than the surviving company disappears. There is a point.
Advantages Of Business Integration
The benefits of business integration include the following:
・Subsidiaries can develop their businesses with autonomy and independence.
・The system for controlling and monitoring the company can be strengthened.
・Confusion among employees can be suppressed.
Subsidiaries Develop Their Business With Autonomy And Incidence
In the case of business integration, each subsidiary essentially operates independently, allowing each company to run its own business. Since a holding company owns the shares of its subsidiaries, in an emergency, it can exercise its rights as a shareholder and intervene in managing its subsidiaries, but this is only a last resort.
Usually, the strength of business integration is that the autonomy and independence of each subsidiary are emphasized, allowing them to operate their businesses freely as long as they follow the group’s business plan and management rules. Another advantage is that because the business portfolio is diversified, even if one company in the group is underperforming, it will not affect other subsidiaries.
The System Of Controlling And Monitoring Can Be Strengthened
This is especially noticeable in the case of pure holding companies, but business integration has the advantage of strengthening the system for controlling and monitoring group companies.
A holding company can oversee the group companies and provide instructions and advice to each company from a high-level position.
If you focus only on your business, you may not realize that you are implementing detrimental measures to other companies in your group.
However, such issues can be noticed quickly with a holding company, and adjustments can be made appropriately. A great benefit is that it allows us to aim for the best as a corporate group.
Reduce Employee Conclusion
When a merger is implemented, the employees of the absorbed company will be upset. You may not be able to feel secure, as it may significantly impact your future work style, such as what will happen to your treatment or whether your duties will change.
There is concern that employees will need clarification and satisfaction, resulting in continued disengagement.
However, in the case of business integration, there is generally no sudden change in previous treatment or job content, so there is little concern that there will be significant complaints or dissatisfaction from employees or confusion. This point is one of the significant advantages of business integration.