When people hear terms like “holding company” and “subsidiary company”, they often assume these are complicated corporate structures only used by giant conglomerates. In reality, many Malaysian businesses including SMEs and family-owned companies use this structure for practical business and legal reasons.
Under the Malaysian Companies Act 2016, companies can be legally connected to one another through ownership and control. These relationships determine whether a company is considered a holding company, subsidiary, or even an ultimate holding company.
If you are running a business, planning expansion, or reviewing a corporate structure, it helps to understand how these relationships work.
What Is a Holding Company?
A holding company is essentially a company that controls another company.
The main purpose of a holding company is usually not to carry out day-to-day business operations itself, but to own shares in other companies. Those controlled companies are known as subsidiaries.
In Malaysia, a company may become a holding company by owning or controlling another company in several ways.
Under section 4(1) of the Companies Act 2016, a company is considered a subsidiary if another corporation:
- controls the composition of its board of directors;
- controls more than half of its voting power; or
- owns more than half of its issued shares (excluding certain preference shares).
In simpler terms, if Company A has enough control over Company B to influence major decisions, Company B will generally be regarded as Company A’s subsidiary.
What Is a Subsidiary Company?
A subsidiary company is a company that is controlled by another company.
Even though the subsidiary may have its own directors, employees, bank accounts, and business operations, it is still legally linked to the holding company because the holding company has significant control over it.
For example:
- ABC Holdings Sdn Bhd owns 80% of XYZ Trading Sdn Bhd.
- ABC Holdings therefore becomes the holding company.
- XYZ Trading becomes the subsidiary.
How Does Control Work?
Control does not always mean owning 100% of a company.
A company may still be regarded as a subsidiary if another company controls:
- the board of directors; or
- the majority voting rights.
This means that even without full ownership, a company can still effectively direct how another company operates.
For example, if a corporation has the power to appoint or remove most of the directors of another company, that level of influence may be enough to establish a holding-subsidiary relationship.
What Is an Ultimate Holding Company?
The Companies Act 2016 also recognises the concept of an “ultimate holding company”.
This refers to the top company in a corporate group structure.
For example:
- Company A owns Company B
- Company B owns Company C
In this situation:
- Company B is a holding company of Company C
- Company C is a subsidiary of Company B
- Company A may be regarded as the ultimate holding company because it sits at the top of the corporate structure
This concept becomes important for corporate reporting, group accounts, and compliance purposes.
What Is a Wholly-Owned Subsidiary?
A wholly-owned subsidiary is a subsidiary whose shares are entirely owned by the holding company (or its nominees).
In practical terms, this means the parent company has complete ownership and control over the subsidiary.
Many businesses use wholly-owned subsidiaries to separate business activities and reduce operational risks.
For example, a property developer may create separate subsidiaries for different development projects so liabilities from one project do not directly affect another.
Why Do Businesses Use Holding-Subsidiary Structures?
1. Risk Management
Separating businesses into different subsidiaries can help isolate liabilities.
If one subsidiary faces legal or financial problems, the risks may not necessarily affect the entire corporate group.
2. Easier Expansion
Businesses can expand into new industries or projects using separate subsidiaries without disrupting existing operations.
3. Asset Protection
Valuable assets such as intellectual property, land, or investments are sometimes placed under a holding company for strategic protection.
4. Tax and Corporate Planning
Group structures may offer advantages for accounting, investment, financing, and restructuring purposes, subject of course to Malaysian tax laws and regulatory requirements.
Related Corporations Under Malaysian Law
The Companies Act 2016 also treats certain companies as “related corporations”.
Companies are considered related if:
- one is the holding company of another;
- one is a subsidiary of another; or
- both are subsidiaries of the same holding company.
This becomes important in areas such as corporate governance, disclosure obligations, financial reporting, and directors’ duties.
Final Thoughts
The distinction between a holding company and a subsidiary company is ultimately about control and ownership.
A holding company sits above and controls another company, while the subsidiary operates under that control, even though both remain separate legal entities.
For many Malaysian businesses, this structure provides flexibility, better risk management, and easier business expansion. Whether you are restructuring a family business, starting a new venture, or investing through multiple companies, understanding these concepts can help you make more informed corporate decisions.
