Investment Holding Companies & Monopoly: Understanding the Risks

An investment holding company earns its money by receiving income from interest, dividends or rent. They don’t actually produce anything or offer any services. Since they hold interest in several different companies, they can take part in dictating policy of the companies. Sounds like this could lead to a monopoly, right? Not always.

Voting Stock

In order for a holding company to claim tax free dividends they must own at least 80% of the voting stock. When a company holds this much stock they can take control. This means they can merge with other companies, split the companies apart, or dissolve them completely.

Creating a Monopoly

In order for any company to control more than half of any industry, they must have government granted approval. This is seen all the time with airline and bank mergers. Getting the approval for this can take a long time. Investment holding companies are not immune to the approval process.

So while it may sound like an investment holding company would lead to a monopoly, it doesn’t generally happen that way. The investment company is out to make money. Having too much of their interest tied in to one industry may not be wise for them. Plus they would still need government approval.