Relationships in company structures

In practice, companies are frequently owned by other companies. Intertwined ownership structures can make it difficult to understand how a company operates, what parts of it are regulated by which government entities, and what part may be of particular interest in a news story. There are parent companies, holding companies, and shell companies, to name a few.

Parent companies are those that own enough stock in another company (called a subsidiary) to control it.

A holding company is a corporation that owns stock in other companies. A pure holding company is established only to hold shares in other companies. A large holding company can control many individual companies. For example, Sears Holdings Corp. has among its subsidiaries Kmart Corp., Lands’ End, Inc. and Sears, Roebuck and Co.

A shell company is a business entity that is not actively engaged in business and has no or few assets. Although some have been abused in money laundering and tax avoidance schemes, shell companies have legitimate uses. For example, publicly traded shell companies are used in reverse mergers, when a private company buys the shell, allowing it to be traded on the market without going through the required initial public offering.

Finding relationships between companies

For a quick reference, Yahoo! Finance’s ownership information (http://finance.yahoo.com/; search for your corporation and select “major holders”) will show whether a company has a parent. For example, it shows that 80 percent of The Student Loan Corp.’s outstanding shares are held by Citigroup Inc.

Yahoo! Finance’s page for Citigroup’s ownership shows no owners with more than 5 percent of outstanding shares, meaning Citigroup Inc. has no parent company.

You can glean from a publicly traded corporation’s SEC filings whether it is held by a parent company and whether it has any subsidiaries of its own.

For example, take the Student Loan Corporation. Using EDGAR, one can click “Search for Company Filings,” then “Company or fund name.” A search for “Student Loan Corp.” should bring up a long list of documents the corporation has filed with the SEC. The corporation’s most recent annual report, Form 10-K, reveals that Student Loan Corp. is “an indirect, wholly owned subsidiary of Citigroup.”

It is possible to trace this relationship the other way, as well. Citigroup Inc.’s 2008 annual report shows, in addition to the actual 10-K form, more documents, called exhibits. One of those exhibits is titled “Subsidiaries of the company.” In this case, the list includes 65 pages of subsidiaries and their state or country of incorporation, including The Student Loan Corp. Sometimes the list of subsidiaries is not clearly labeled in the file name, so it might have to be found among the unlabeled exhibits.

Hoovers.com, a private Web site that tracks company information, sorts businesses into several directories including one for subsidiaries and one for holding companies.

Reporter’s tip: If you frequently cover a specific company in your community, be sure to have that company’s public affairs office on speed-dial. Never be afraid to ask them whether anything has changed since the last public filing made by the company. Local business analysts will also be helpful to you.