Quentin Belot , Université Grenoble Alpes (UGA)
Peugeot, Mulliez, Wendel… all the major French capitalist families use holding companies. A historical and educational overview to understand this complex legal and financial structure. The goal: to transform the value produced by large companies into private wealth.
While the French budget debate regularly brings the taxation of the "ultra-rich" back to the table, particularly following Gabriel Zucman 's proposals, public discussion focuses almost exclusively on the downstream end of the economic system. The central question: how to tax income and wealth once they have been accumulated?
This approach overlooks a crucial point, situated upstream. The accumulation of wealth does not occur at the level of individuals, but primarily within societies, before being progressively transformed into private assets.
One of the key instruments is the holding company , a company that produces nothing, whose sole purpose is to hold ownership stakes in other companies. Understanding its role leads us to shift our focus from purely distributive issues to the mechanisms that constitute wealth accumulation.
The issue I studied in my thesis was understanding its role in the progressive separation of shareholders' personal responsibility and assets on the one hand, and corporate social responsibility on the other. From the factory to the subsidiary, from the industrial group to the asset portfolio, and then to the "Family Office," the pyramids of holding companies organize the increasing abstraction of capital, transforming collectively produced value into lasting private wealth.
A look back at the history of holding companies, from commendas in the Middle Ages to Family Offices in the 21st century, via public limited companies during the industrial revolution.
From the commenda in the Middle Ages to the industrial revolution
Before we talk about history, let's talk about economic theory.
First, as soon as capital is tied up in an economic activity, or immobilized in accounting records, such as in the spice trade, it is no longer available for other potentially more profitable investments. Second, in order to be valued as private assets and passed on to heirs, capital must ultimately be detached from the business. The holding company addresses this paradox, as old as capitalism itself: separating financial responsibility between the professional and personal spheres.
From the 10th century onwards, systems like the commenda established a separation between the investor, who provided the capital, and the operator, who carried out the commercial enterprise, most often in the form of a maritime voyage. These systems developed in Venice and Genoa, contributing to the prosperity of both cities.
From the 15th century onwards, joint-stock companies emerged in the context of colonial conquests. This was the legal model for royal monopolies such as the English, Dutch, and French East and West India Companies. This legal form introduced the divisibility of capital within the framework of uncertain trade, requiring the immobilization of substantial capital.
In the 19th century, in parallel with the industrialization movement in Europe, this separation of property and economic responsibility was formalized through specific legal entities.
Creation of public limited companies
The French Commercial Code of 1807 introduced a clear distinction between private assets and economic activity, paving the way for the creation of public limited companies (SA). By removing the shareholders' names from the company's name, the public limited company became an autonomous legal entity with its own liability. This new situation led many individual investors to profit from a company's earnings until its bankruptcy, without bearing the consequences.
The rise of public limited companies was facilitated by the 1864 law on commercial companies . This legal structure allowed companies to be financed by anonymous investors external to the company through the capital market – in shares or bonds. It became the dominant form of business after the Second World War.
In practical terms, the public limited company, by allowing financing on a broader basis, also introduces a paradox. On the one hand, the owners of the capital are no longer personally liable for the capital invested in the company. On the other hand, a new problem arises: how can the families of historical shareholders retain control of the capital in a context of a growing number of investors?
It is within this context that the first legal structuring of family capital appears. While it is impossible to speak of holding companies at this time without being anachronistic, the foundations are laid.
Construction of industrial groups
In France, the formation of large industrial groups began relatively late, in the 1960s and 1970s, driven by the State and investment banks such as Lazare and Rothschild . Mergers, acquisitions, and restructurings gave rise to industrial conglomerates of unprecedented size, almost always headed by holding companies .
The 1965 tax reform facilitated the creation and organization of the large groups we know today. By reducing taxes on dividends distributed by subsidiaries to their parent companies, it encouraged firms to structure themselves into multiple layers of nested companies. A pyramidal system became widespread, gradually replacing traditional financial structures in which shareholders personally owned shares in the companies of the family group.
The holding company becomes a central structure, controlling ownership, cash flow, and decision-making power, while maintaining the legal autonomy of its subsidiaries. These group holding companies fulfill several functions: financial leverage, a tool for external growth and asset arbitrage, and organizational separation between capital ownership and productive activity.
The creation of Peugeot SA in 1966 as the parent company of the family industrial group is a prime example. The various activities – bicycles, tools, and automobiles – were previously managed by independent companies, directly owned by shareholders from different branches of the family. The holding company Peugeot SA is itself controlled by Foncière et Financière de Participation (FFP), a family holding company established in 1929. This tax and legal structure ensures unified financial management of the various subsidiaries and centralized management of the family capital.
Empires of Capital
From the 1990s onwards, amidst the onset of stagnation, accelerated capital accumulation, and the financialization of the economy , several hostile takeovers of companies took place. Major French groups today, such as LVMH, Lagardère, and Bolloré, were formed through large-scale, more or less aggressive, financial operations.
These operations are conducted through holding companies, which centralize cash flow and, in effect, leverage these investments—using debt to increase the company's investment capacity. Legally and nominally independent, these holding companies allow for the acquisition of a company's shares more discreetly than through a company bearing the family name. This is the strategy deployed on numerous occasions by the Bolloré Group.
Holding companies are therefore increasingly removed from industrial development issues, and increasingly closer to financial optimization strategies within the framework of these new capital empires.
Private equity firm
These holding companies are gradually being transformed into private equity firms. They serve as a support for asset diversification strategies and a profound restructuring of capital associated with financialization.
The holding company can be a vehicle for diversifying family capital, which does not preclude maintaining industrial control. This is the case with the FFP group, the Peugeot family's investment company and predecessor to Peugeot Invest . From the 2000s onward, this financial diversification accelerated: the holding company acquired stakes in numerous groups, such as Seb, Orpea, Ipsos, DKSH, Dassault Real Estate, Zodiac, Tikehau, Totan Eren, Spie, as well as real estate companies, private equity funds, and others. This significant movement went hand in hand with the Peugeot family holding company retaining a substantial portion of its control over the PSA group, which became Stellantis (see below for the holding company's investments in 2019).
Family Office, the holding companies of the holding companies
At the upper echelons of wealth, structures such as "Family Offices " are now being added. These complete the transformation of economic capital into private wealth for many French dynasties at the top of the wealth rankings. Beyond wealth planning, these structures offer a range of financial services as well as management of relationships between shareholders and relatives within these wealthy families.
This phenomenon is widespread. The capital of the main French dynasties is now organized around holding companies forming more or less complex structures, but always with a main financial company: H51 holding for the Hermès family, Agache company for the Arnault family, Téthys Invest for the Bettencourt-Meyers family, GIMD for the Dassault family, Merit France for the Saadé family, NJJ holding for the Niel family, etc.
Within these family empires, the holding company structures constitute the ladder enabling the transformation of value produced within the real economy into private wealth. Therefore, considering economic issues by focusing solely on the lowest level, that of industrial subsidiaries, is largely incomplete.
Placing holdings at the heart of the analysis therefore makes it possible to understand that enrichment is neither natural nor automatic, but the product of a precise institutional architecture, largely invisible in the public debate.
Quentin Belot , Senior Lecturer, Grenoble IAE, Université Grenoble Alpes , Université Grenoble Alpes (UGA)
This article is republished from The Conversation under a Creative Commons license. Read the original article.