This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A striking development of recent years has been the growing use and importance of companies which hold the stock of other corporations. There was originally no thought that corporations might be organized for any other purpose than to conduct directly the business operations specified in their, articles of incorporation. It was in time discovered, however, that among the possible powers of a corporation, it might hold securities of other corporations just as an individual might do. At the beginning, the only use made of this power was to purchase interests that could be regarded as useful to the corporation or as subserving the main purpose for which it was created. This remains today the most common and important purpose for which corporations acquire the shares of other corporations.
But the holding company device has proved extremely useful also for another purpose on which public attention has been largely centered. This purpose is to achieve a combina-tion of competing concerns which will restrain competition and be within the requirements of the law. This subject has been so fully discussed in various books and articles that it needs only a brief reference. Before the adoption of the "holding" company device, combinations of competing concerns had been effected in several different ways. The first attempt to achieve such combinations in the United States was made by competing railroads which worked out various "gentlemen's agreements" for the regulation of rates and competitive methods. These agreements never stood the strain of every-day use for any long period. They always broke down because they were not hard and fast contracts; they were differently interpreted by the various individuals who entered into them and had no legal sanction.