What Is a Holding Company? Understand Its Role in the Business

A holding company is a well-known concept in the business world. This term is closely related to a company that becomes part of a larger corporate group.

What is a holding company, and what role does it serve in business? The following article provides a detailed explanation.

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What Is a Holding Company?

According to Law Number 40 of 2007 concerning Limited Liability Companies, a holding company (parent company) can be defined as a company that owns controlling shares (majority stake) in the majority ownership of shares, allowing it to have control over the management and operations of the companies under it (subsidiaries).

As a result, a holding company holds dominant voting rights at the General Meeting of Shareholders (GMS) of its subsidiaries, allowing it to determine strategic policy directions.

In addition, a holding company may own controlling shares in one or more other companies. However, this company usually does not directly carry out business operations itself.

The Important Role and Purpose of Establishing a Holding Company

The primary purpose of a holding company is to own and control other companies. Additional objectives include the following:

1. Risk Diversification

Profits from investments in various sectors help the parent company reduce the risk of failure in any single business area. Financial difficulties in one subsidiary do not directly threaten the entire corporate group.

2. Business Expansion

The holding company model is widely used for business expansion. This is because a holding company simplifies the process of acquiring other companies, thereby accelerating the growth of the corporate group.

3. Centralized Control

The holding company structure allows decision-making to be centralized and well-directed. This way, all companies within one group can move according to the same vision and mission.

4. Easier Access to Capital

A holding company leverages its financial strength to secure loans or issue bonds. This can help subsidiaries to access funding for business development.

Characteristics of a Holding Company

Key characteristics of a holding company include the following:

1. Has Subsidiaries

A parent company typically has at least one subsidiary, with no upper limit. Subsidiaries play a vital role in supporting the corporate group's business activities.

2. Controls Subsidiaries

A parent company must be able to direct the policies and strategies of its subsidiaries. This control is exercised through appointing directors and commissioners, setting budgets and work plans, and establishing policies and procedures.

3. Owns Shares in Subsidiaries

A parent company generally owns part or all of its subsidiaries' shares, acquired through purchase, joint establishment, or acquisition. The ownership percentage determines the level of control over each subsidiary.

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Authority of a Holding Company

A holding company has several key authorities, including:

1. Planning and Control

The first authority of a holding company is to create plans and control subsidiaries. In line with this, subsidiaries must comply with all plans that have been made by the holding company.

Often, a holding company also has different policies for each subsidiary. In addition, a holding company can conduct audits to ensure that subsidiaries implement established plans.

2. Mergers with Similar Services

If needed, a holding company can merge several similar companies or carry out mergers. However, the companies being merged must have suitable products or services.

Mergers are generally intended to streamline planning and operational management across merged companies.

3. Operational Management

Furthermore, holding management also regulates operational management to reduce the risk of subsidiary bankruptcy. This is because the holding company is also responsible if a subsidiary experiences bankruptcy.

Conversely, if a subsidiary succeeds, the holding company benefits from its profits.

4. Building a Strategic Position

A holding company should maintain a strong market position. In this way, both the parent company and subsidiaries can become stronger and have a broader market reach.

Types of Holding Companies

Holding companies vary in type, each with distinct characteristics and purposes, as explained below.

1. Based on the Level of Involvement in Operations

Based on operational involvement, holding companies are classified into two types:

• Operating Holding Company: Actively manages and supervises subsidiary operations, participates in strategic decision-making, sets company policies, and directly oversees operational functions.
• Investment Holding Company: Takes a more passive approach, focusing on investing in various companies and maximizing returns, with minimal involvement in daily operations.
  
  

2. Based on Business Diversification

Types of holding companies based on business diversification include:

• Conglomerate Holding: Has a very diverse business portfolio covering various unrelated industrial sectors. For example, a conglomerate may own subsidiaries in finance, automotive, and property sectors.
• Pure Play: Focuses only on one particular industrial sector. For example, a holding company that only owns subsidiaries in the automotive sector.
  
  

Astra: An Example of a Strong Holding Company in Indonesia

Astra is a leading Indonesian holding company with subsidiaries in multiple sectors. Its strength lies in integrated management systems, including Astra Green Company (AGC) and Astra Friendly Company (AFC).

AGC ensures that all subsidiary installations comply with strict environmental and occupational safety standards. In 2025, 93.99% of Astra Group's 798 installations achieved Blue, Green, or Gold ratings in the internal LK3 assessment.

Astra also promotes circular economy innovation through the Astra Circular Economy Institute (ACEI), integrating 9R principles such as Recycle, Reuse, and Repair into subsidiary manufacturing processes.

ALSO READ: 7 Lists of Astra Business Lines: Diversification and Sustainable Innovation

Be Part of Astra's Sustainability Journey as One of the Largest Holding Companies in Indonesia

Now, you understand that a holding company is one of the business strategies capable of creating a broad impact when managed with the right vision. It also forms part of Astra's approach to achieving its 2030 Sustainability Aspirations.

To learn more about Astra's business lines, review the Astra Sustainability Report and see how synergy supports the vision of “Prosper with the Nation.”