Holding Company

See: Hold.

Your great grandpappy Milton died and left you $20 million. You’ve always wanted to own your own bar. Or like...20 of them. So you hop in your F-150, which you lovingly named Roscoe, and buy 20 bars for a million bucks each. But they produce so much cash that, a year later, you have 5 million bucks to spend on...more.

You’re kind of done with driving all over creation in ol’ Roscoe...so you buy a mega-distillery. And then you buy a DJ music management company. And then you buy an insurance company specializing in insuring bars. And then you buy a pool cue stick supply company, because in those fights, they always seem to be the first thing to break.

Each of these businesses exists separately, and makes money on its own. Your head of sales of the pool cue company keeps trying to sell them to angry prisons, thus far with no success, but hope springs eternal. One sale, and that company makes bank. Which, uh…then gets robbed.

So you have a whole pile of assets, each of which kind of lives on its own, but is happy to have a dotted line relationship with the other companies. And you note that, in any given year, one company might be very profitable, while another might be losing money.

So you come up with the clever idea of having Confederacy Holding Company put all of the assets into one legal entity, framed as an operating company so that taxable gains from one division can be efficiently offset by tax losses from another, and the party rages on.

This is a pretty common structure in industries where one hand kinda sorta washes the other. Check out all the little companies that comprise Time Warner. HBO, Turner, TBS, Hulu, Alphabet (the holding company for Google X, Calico, Nest Labs, etc.)…

So yeah. A holding company…holds other companies. And, when things aren’t going well…then often, there’s a lot of crying.