Partial Consolidation

1. Trust

2 Community Interest

3. Holding Company

1. Trust:

The trust is a vertical type of business combination and was first formed in USA. The trust is a business combination of the companies, which are engaged in the same industry and transfer their shares (stock) to a body known as board of trustee. The companies forming the trust, got trust certificates in exchange of their holdings and distribute them among their members (shareholder). The board of trustee is responsible and is empowered to make all business decisions. It controls the production of member companies to make arrangements for the sale of total output the main purpose of the trust is to enjoy the economies large scale of production. Trust is comparatively a strong combination and members cannot separate themselves easily. The profit earned by the trust is distributed among the members on the basis of trust certificates held by them.

Advantages:

The main advantages of the trust are as follows:

Large Capital:

As the trust has full control on the financial resources of all its member companies, so it has large amount of capital and can produce the goods and services at large scale.

Economies of Scale:

As the trust has large amount of capital, so produces the goods and services

at large scale and all the economies of large scale are availed by it.

Control on Market:

A trust as a big organization and productive unit is in better position to have

control on the market

Credit Standing:

The trust due to its strong financial position has better credit standing. Is suppliers and financial institutions may easily grant loans to it.

Stable Combination:

The trust is comparatively more stable combination than pool and cartel and has long life.

Control Overproduction:

The trust arranges its production according to the market. Thus, there is no chance of overproduction and decrease in price.

Expert Services:

The trust as a big organization and having strong financial position can hire the services of the qualified and experienced persons who are the experts of their specific fields.

Use of Modern Machinery:

The trust as a big II organization can use the modern machinery in production process. It does not only increase the output but also improves the quality of the goods and reduces the cost of production.

Reduction in Cost:

It is possible by the trust to reduce the cost of production by purchasing raw material in bulks by the use of modern machinery and by reducing carriage cost.

Separate Entity:

In spite of common management, the member companies have their separate entity and have a right to separate them from the trust.

Disadvantages:

The main disadvantages of the trust are as follows:

Difficult Formation:

The trust is difficult to form because the member companies are not willing to loose their freedom in making any sort of decision about product, management and distribution o the goods.

Creation of Monopoly:

The trust due to its sound financial position and large-scale production creates the position of monopoly and it charges high prices, which is harmful to the general public.

Over Capitalization:

In case of trust the financial resources of all the member units are combined and there is a chance of over capitalization. In this way, sufficient amount of funds remains spare and is not properly utilized.

 Discourage New Investment:

The trust due to its sound financial position and control on the market discourages the new investors to enter in this same field of production.

Illegal Combination:

As the trust is against the benefits of general public, so majority of the capitalistic countries have declared it as illegal combination.

Difficulty in Separation:

As the formation of the trust is comparatively difficult, in the same way, the separation of any member company is also not easy.

Unequal Distribution of Wealth:

The trust has concentration on wealth and as such becomes the mean o distribution of wealth within a few hands and this unequal distribution of wealth is an anti-social act for the general community.

2. Community Interest:

This is informal business combination. Sometimes some investors having purchased the majority of chares of different companies are elected, or become directors of different companies and make uniform managerial policy for all those companies where they have common interest. In this way, these competing companies have no formal agreement for the common management but due to common interest, ownership, and directors, they make polices by which competition is eliminated and they support and cooperate with each other to earn more and more profit.

Advantages:

• The main advantages of community interest are as follows:
• The formation of this combination is very easy because no formal agreement is needed.
• The unhealthy competition among member firms is eliminated.
• It has long life because owners have common interest.
• It avails the economies in purchase, sale, finance and management.
• The rivals become friends and they work to increase the profit of each other due to common management and interest.

Disadvantages:

• The main disadvantages of community interest are as follows:
• It cannot generally achieve its objectives due to difference in opinion among its member and directors. the monopoly position and charges high prices from the
• Sometimes, it takes customers If the members deal indifferent products and then the economies of large scale cannot be achieved.
• Every combination is basically against the interest of the general public.

3. Holding Company:

When the company holds the majority of the shares of another company, such company is known as holding company or parent company and the company whose shares are purchased or held in known as subsidiary company. A joint stock company is managed by a board of directors who are elected by the voting rights of shareholders. When a company had purchase more than 50% shares of another company, it has on the voting rights of purchased company and majority of the directors are elected by it. In this way it had hold (control) on the management of another, company and due to that reason, it is known as holding company. A company, whose more than 50% shares are hold by another company, such company is known as subsidiary of the holding company. A company may have one or more subsidiaries and a subsidiary of one company may be the holding company for another company. A subsidiary company has separate legal entity and operates with its own name.

Advantages:

The main advantages of the holding company are as follows:

Easy Formation:

The formation of a company is very easy. There is no legal formality involved in its formation. When a company holds more than 50% shared of another company it becomes a holding company.

Elimination of Competition:

When a company purchases more than 50% shares of other companies and

has control on the management of the subsidiary companies, it makes policies to eliminate completion and to create friendly relationship between holding company and all its subsidiaries.

Separate Legal Entity:

瑚 In this sort of combination, the subsidiaries and holding companies has separate legal entities and can enter into contracts with third parties with iv)

their own names.

Economies of Large Scale:

A holding company due to its strong financial position and large business enjoys the economies of large scale in purchases, production, finance and management.

Stable Combination:

This is a stable from of I business combination because the disagreement of I subsidiary cannot affect the form of business combination.

Efficient Management:

The holding company appoints qualified and experienced persons as the directors of subsidiaries. The experienced management increases the over all efficiency of the business and profit margin is also increased.

Expert Services:

The holding company, du to its strong financial position can hire the services of experts in the field of production, sales and finance and its subsidiaries also get benefits from their services.

Goodwill:

When the holding company is good reputed arid has goodwill, then all its subsidiaries also enjoy it.

Control on Production:

The holding company is in better position to control the production of itself and its subsidiaries according to the market demand and to control re-over production.

Patent Rights:

The holding company and all its subsidiaries can enjoy the benefits of common patent rights.

Sale of Interest:

The holding company can sell interest in any subsidiary at any time when it needs and there is no legal restriction on their separation.

Disadvantages:

The main drawbacks of the holding company are follows:

Creation of Monopoly:

The holding company due to its strong financial position and large-scale production creates the position of monopoly and it charges high price, which is harmful for the general public.

Over Capitalization:

Owing to control on management, the financial resources of the subsidiary companies are also in the control of the holding company and there is a chance of overcapitalization. In this way sufficient amount of funds remains spare and is not proper utilized

Discourage New Investors:

The holding company due to its strong financial position and control on the market discourages the new investors to enter into the same field production.

Against the Minority Interest:

The hold company while forming policies does not care for the minority interest and their rights are always exploited. The minority means the shareholders of the subsidiary companies other than the holding company.

Against the National Interest:

The hold company like all other forms of business combinations is also against the national interest of the country due to its personal interest and selfishness.

Heavy Managerial Cost:

Often the of the holding company are also elected as directors of the subsidiaries and get heavy fees from the subsidiaries appoint the persons of their choice as officers at high salaries and in this way heavy managerial expenditure is incurred.

Danger of Fraud:

There is always a danger of fraudulent floatation and manipulation subsidiary companies.

Unequal Distribution of Wealth:

The holding company has concentration on wealth and as such becomes the mean of distribution of wealth within a few hands and this unequal division of wealth is an anti-social act for the general community.

Difficulties in Accounting Record:

The maintenance of the accounting record for the holding company and its subsidiaries become complex and difficult activity. It is always a problem whether the internal transaction of the holding company and its subsidiaries should be shown at cost or Dfa Ho market value in the books of accounts of the companies.

Difficulties of Separation:

When a holding company has purchased majority of the shares of another company then it is not possible for the subsidiary to get free from the control of the holding company without its own will