holding company

The dominant characteristic of a holding company is the ownership of securities by which it is possible to control or substantially to influence the policies and management of one or more operating companies in a particular field of enterprise

A corporation organized to hold the stock of another or other corporations. Such companies become legally possible by virtue of the legislation, which Is said to exist in nearly all the states, which authorizes a corporation to hold and own the capital stock of other corporations. Edgar H. Farrar (Am. B. Ass’n [1911] 241) said: “The most vicious of all the provisions in the statutes above enumerated is that authorizing one corporation to own and vote stock in another. This provision is the mother of the holding company and the trust.... Before these statutes were passed, the courts of the country had held with great unanimity that it is against public policy for one corporation to hold and vote stock in another, and the general ground of the doctrine is that such stockholding tends to restrain trade and to foster njronopoly. That this doctrine is true has been demonstrated by the fact that most of the great trusts have clothed themselves in the form of holding companies.” He points out a Utah statute of 1907 under which a Utah railroad company could acquire and control the stock of all transportation companies by land, river, lake, or sea, in the United States, all terminal docks, etc., and all express companies, etc., except the stock of a competing railroad situated within the state of Utah. It is probably more usual to find a corporation adding to its own business the control, by such stock ownership, of other corporations. The legal principles involved appear to be the same. There are Instances of unincorporated associations acting as holding companies: e. g., the Mackey companies controlling cable companies; see I Cook, Corp. 952. In Massachusetts a practice obtains of vesting corporate stocks in a body of trustees, who hold the stock and manage the corporations for the parties in interest See Trust Estates as Business Corporations. When a corporation asserts that it has power to hold stock in another corporation, the burden rests on it to shbw whence such power is derived; Mannington v. Ry. Co., 183 Fed. 133. In U. S. V. Knight Co., 156 U. S. 1, 15 Sup. Ot 249, 39 L. Ed. 325, where a New Jersey corporation controlled a majority of the manufacturers of sugar in the United States, and acquired a practical monopoly of the business, it was held that the business had no direct relation to commerce between the states and that the monopoly acquired by the corporation could not be suppressed under the Sherman act. The acquisition by a corporation of a controlling interest In the stock of corporations owning or controlling and operating all the street railway lines in parts of the city of tion of the stock corporation act of the state; Burrows v. Interborough Metropolitan Co., 156 Fed. 389 (0. C., S. D. of N. Y.). Where a New Jersey holding company held more than nine-tenths of the stock of the Northern Pacific R. Co. and more than three-fourths of the stock of the Great Northern R. Co., operating competing lines of railroad, and issued its shares of stock to the depositing stockholders, it was held that the constituent companies became one consolidated corporation by the name of the holding company, the principal, if not the sole, object of which was to prevent competition between the constituent companies, that this was an illegal combination to restrain interstate commerce within the Sherman act, that on a bill by the Attorney General of the United States, the holding company would be enjoined from voting such stock and from exercising any action whatever over the acts of the railroad companies, and that the railroad companies would be enjoined from paying dividends to the holding corporation on any of their stock held by it; Northern Securities Co. V. U. S., 193 U. S. 197, 24 Sup. Ct 436, 48 L. Ed. 679. The purchase by the Union Pacific R. Co. of forty-six per cent, of the stock of the Southern Pacific R. Co., with the resulting control of the latter by the former, is in restraint of trade and will be dissolved; U. S. v. R. Co., 226 U. S. 61, 33 Sup. Ct. 53, 67 L. Ed. 124. Where the stock of two railroad companies is held by a hdlding company, it may be sufficient to bring them within the interstate commerce act where the joint work performed by both of them will do so; U. S. v. Stock Yard, 226 U. S. 286, 33 Sup. Ct. 83, 57 L. Ed. 226. A Massachusetts statute forbids railroad companies from holding, directly or indirectly, the stock of any other corporation; see Attorney General v. R. Co., 198 Mass. 413, 84 N. E. 737; while in Connecticut one railroad company may buy a majority of the stock of another and in some cases condemn the minority holdings. Where an insurance company acquired a majority of the stock of a trust company, and the latter acquired a majority of the stock of the former, it was held illegal upon a bill by a dissenting stockholder of the insurance company; Robbtham v. Ins. Co., 64 N. J. Eq. 673, 53 Atl. 842. A New Jersey corporation, with power to do so, may buy stock in another company and guarantee and agree to pay dividends on outstanding prior stock of the latter corporation; Windmuller v. Distilling Co., 186 N. Y. 672, 79 N. E. 1119; and may legally acquire a, majority of the stock of street rail-, ways in different cities in Tennessee, if it does not create an unlawful restraint of trade; Clark v. Ry. Co., 123 Tenn. 232, 180 interest In another, no more than two-thirteenths, it is not an unlawful combination: State V. Missouri Ry. Co., 241 Mo. 1, 144 S. W. 863; but in Central R. Co. v. Collins, 40 Ga. 582, one railroad company was enjoined from purchasing a minority interest in a competing line. The ownership of stock in a coal producing company by a railroad company does not cause it, as the owner of such stock, to have a legal interest in the commodity, manufactured by the producing company; U. S. v. Delaware & H. Co., 213 U. S. 366, 29 Sup. Ct 627, 63 L Ed. 836. A corporation owning all the stock of another corporation may take the profits of the latter without a declaration of a formal dividend, if other parties are not prejudiced; Central of Geor^a Ey. Co. v. Trust Co., 135 Ga. 472, GO S. E. 708. A corporation organized in Delaware by residents of Pennsylvania, to own stock of and finance Pennsylvania corporations, having the same officers and substantially the same stockholders, and which maintains its office and holds directors’ meetings, etc., in Pennsylvania, was held to be doing business in Pennsylvania and bound to register there under the statute; Colonial Trust Co. v. Brick Works, 172 Fed. 310, 97 C. C. A. 144. Shares of stock in an elevator company owned by a railroad company do not become subject to the general mortgage of the latter; Humphreys v. Mc Klssock, 140 U. S. 304, 11 Sup. Ct. 779, 35 L. Ed. 473; but it is held that stock belonging to a railroad passes to its receiver when foreclosure of a mortgage is begun, and becomes subject thereto; Herring v. R. Co., 105 N. Y. 340, 12 N. E. 763. The subject is fully treated in Cook, Corporations. See Voting TbustS; Restbaint or Tbade.