Major drawbacks or disadvantages of holding company can be expressed as follows:
1. Problem Of Over Capitalization
There is a high possibility of over capitalization in holding company because of large capital. It negatively affects the profitability and is not beneficial for both holding and subsidiary companies.
2. Fear Of Monopoly
Formation of holding company may create monopoly in the market. Consumers may be exploited by high prices and artificial scarcities.
3. Oppression Of Minor Shareholders
There is a high chance of dominance over minority shareholders. Their interests may be ignored by the management of holding company.
4. Costly
Holding company has to spend a lot of money to manage and control different units and subsidiary company. It spends more money for officers and directors. It suffers from high administrative costs also.
Directors of holding company posses unlimited power. So, they may misuse the funds of the company.
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6. High Chance Of Fraud
Due to the lack of transparency, there is a chance of committing fraud in holding company.
7. Difficult To Manage
It is very difficult to handle or manage holding company properly. It is difficult to maintain coordination, supervision and control different units and subsidiary company effectively by a centralized authority.
