HOLDING COMPANY. A corporation or ganized to hold the stock of another or other corporations. Such companies become legally possible by virtue of the legislation, which is said to exist in nearly all the states, which authorizes a corporation to hold and own the capital stock of other corporations.
Edgar H. Farrar (Am. B. Ass'n [1911] 241) said: "The most vicious of all the pro visions in the statutes above enumerated is that authorizing one corporation to own and vote stock in another. This provision is the mother of the holding company and the trust. . . . Before these statutes were passed, the courts of the country had held with great unanimity that it is against public policy for one corporation to bold and vote stock in another, and the general ground of the doctrine is that such stockholding tends to restrain trade and to foster monopoly. That this doctrine is true has been demon strated by the fact that most of the great trusts have clothed themselves in the form of holding companies." He points out a Utah statute of 1907 under which a Utah railroad company could acquire and control the stock of all transportation companies by land, river, lake, or sea, in the United States, all terminal docks, etc., and all express com panies, etc., except the stock of a competing railroad situated within the state of Utah.
It is probably more usual to find a corpo ration adding to its own business the control, by such stock ownership, of other corpora tions. The legal principles involved appear to be the same. There are instances of unin corporated associations acting as holding companies : e. g., the Mackey companies con trolling cable companies ; see 1 Cook, Corp. 952. In Massachusetts a practice obtains of vesting corporate stocks in a body of trus tees, who hold the stock and manage the corporations for the parties in interest. See TRUST ESTATES AS BUSINESS CORPORATIONS.
When a corporation asserts that it has power to hold' stock in another corporation, the burden rests on it to show whence such power is derived; Mannington v. Ry. Co., 183 Fed. 133.
In U. S. v. Knight Co., 156 U. S. 1, 15 Sup.
Ct. 249, 39 L. Ed. 325, where a New Jersey corporation controlled a majority of the manufacturers of sugar in the United States, and acquired a practical monopoly of the business, it was held that the business had no direct relation to commerce between the states and that the monopoly acquired by the corporation could not be suppressed un der the Sherman act.
The acquisition by a corporation of a con trolling interest in the stock of corporations owning or controlling and operating all the street railway lines in parts of the city of New York, underground, elevated and sur face, is an unlawful monopoly and in viola tion of the stock corporation act of the state ; Burrows v. Interborough tan Co., 156 Fed. 389 (C. C., S. D. of N. Y.).
Where a New Jersey holding company held more than nine-tenths of the stock of the Northern Pacific R. Co. and more than three-fourths of the stock of the Great North ern R. Co., operating competing lines of rail road, and issued its shares of stock to the depositing stockholders, it was held that the constituent companies became one consoli dated corporation by the name of the holding company, the principal, if not the sole, ob ject of which was to prevent competition be tween the constituent companies, that this was an illegal combination to restrain inter state commerce within the Sherman act, that on a bill by the Attorney General of the Unit ed States, the holding company would be en joined from voting such stock and from ex ercising any action whatever over the acts of the railroad companies, and that the rail road companies would be enjoined from pay ing dividends to the holding corporation on any of their stock held by it; Northern Se curities Co. v. U. S., 193 U. S. 197, 24 Sup. Ct. 436, 48 L. Ed. 679. The purchase by the Union Pacific R. Co. of forty-six per cent. of the stock of the Southern Pacific R. Co., with the resulting control of the latter by the former, is in restraint of trade and will be dissolved; U. S. v. R. Co., 226 U. S. 61, 33 Sup. Ct. 53, 57 L. Ed. 124.