The term “holding company,” in common practice, is used to de scribe a variety of industrial organizations. As the term was used in the 1930's it referred to: A corporation formed for the express purpose of control ling other corporations by the owner ship of a majority of their voting capital stock. In common usage, the term is applied to any corporation which does in fact control other corpora ions commonly referred to as subsidiaries.
There are two general forms of holding companies: the first is one which derives its profits solely from the investments in the securities of its subsidiaries. These are called “investment holding companies.” The second type, which may derive profits from investment securities, also receives profits from transactions with the subsidiaries and is called a “management holding company.” The second type describes the public utility holding companies regulated by PUHCA.
The Public Utility Holding Company Act of 1935 defines specifically what a public utility holding company is: Any company which directly or indirectly owns, controls, or holds with power to vote, 10 per cen - tum or more of the out standing voting securities of a public utility holding company or of a company which is a holding company by virtue of this clause. unless the [Securities and Exchange] Commission declares such a company not to be a holding company. [Any] person which the Commission determines, after notice of an opportunity for hearing, directly or indirectly to exercise (either alone or pursuant to an arrangement or understanding with one or more other persons) such a control ling influence over the management or policies of any public-utility or holding company as to make it necessary or appropriate in the public interest or for the protection of investors or consumers that such person be subject to the obligations, duties, and liabilities imposed in this title upon holding companies.
Put simply, a public utility holding company exercises a controlling interest in another company which either directly or indirectly controls an operating public utility. During the 1930's, four types of public utility companies existed and are described as follows: