HOLDING COMPANIES 1. Rise of the holding company.—Shortly after the arrangement of intercorporate relations thru the use of voting trusts had been declared illegal in the oil and sugar industries the device of the holding company became popular and was widely heralded as the ultimate scheme of the trust lawyers to circumvent the anti-trust laws. Certainly, it was argued, the courts could not .prevent a corporation from bolding property if it was given that right by the laws of the state in which it was incorporated. The fact that the property happened to be stocks of competing companies was considered to be imma terial. And this view was strengthened, in 1895, by a decision of the Supreme Court in. the Knight case, in which the holding of stock in four independent con cerns by the American Sugar Refining Company was not condemned. But, in 1904, the same court more carefully examined the device of the holding company and held that if it was merely a legal method of com mitting an illegal act—the act of forming a monopoly —it would be ordered to dissolve. Since it was dur ing the period from 1890 to 1904 that most of the large industrial combinations were formed, a number of them, including tbe United States Steel Corporation, still exist in the form of holding companies.
2. 3Iagnitude of interests involved in holding com pan if a brief submitted on behalf of the public utility bolding companies of the country to the Interstate Commerce Committee of the United States Senate, the proportion of the public utility business of the country in the hands of holding companies was shown to be very large.
The total capital employed in electric, gas, street and interurba.n railway companies, commonly called public util ity corporations, in this country- today is estimated to ex ceed eight billion dollars. Of this capital nearly five and a half billion dollars are controlled by holding companies and their subsidiary cdmpanies. Of the approximately 89,000, 000 people served by electric light and power and gas com panies over 62,000,000 (approximately 70 per cent) are served by holding company systems.
The electric light and power companies represent approxi niately two billion dollars of capital, of which approximately 76 per cent is controlled by the holding conipany form of or ganization. These utilities serve over 50,000,000 people,
approximately 38,000,000 of which are served by holding companies. Of 577 cities of 10,000 or more population served, 428 are served by holding company systems. Of the 114 cities in the United States of a population in excess of 50,000, 103 arc served by holding companies. Of the 54 cities in this country having in excess of 100,000 population, 49 are served by the holding company.
Artificial gas companies represent a capital of approx imately naid one and one-third billion dollars. Of that capital, approximately two-thirds is controlled by holding companies. The gas utilities of the country serve approximately thirty eight and one-half million people. Of this number nearly twenty-five million are served by holding companies or their subsidiaries.
Street and interurban railway companies represent a total capital of approximately five billion dollars. Of this sum it is estimated that not less than two-thirds is controlled by holding companies. In the 28 cities of the United States having a population in excess of 2.00,000, the mileage of track controlled by bolding companies is in excess of 61 per cent. Here, again, it is of interest to note that only four of these cities have more than one principal operating company and only two of these cities have companies that are really independently, and separately owned.' 3. Classification of holding companies.—Some com panies, like the United States Steel Corporation, the old Rock- Island Company and the American Power and Light Company, are purely holding companies; they exist merely to hold stock- of several other cor porations but undertake no operations on their own account. They are simply administrative in function. To such corporations may be applied the term holding companies. Other corporations, like the Jones and Laughlin Steel Company, New York Central Rail road and the Interboro Rapid Transit Company of New York City, operate property of their own, be sides controlling other companies thru stock owner ship. Such companies are called parent companies. The companies whose stock is held are known as sub sidiaries.