Wholly-Owned Subsidiary - Explained
Subsidiaries and Wholly Owned Subsidiaries
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What is a Wholly-Owned Subsidiary?
A wholly owned subsidiary is a business entity whose equity (ownership interest) is held or owned by the parent company.
- Example: Company A (a corporation that issues common stock as its form of equity) is a wholly owned subsidiary of Company B (the parent company) if Company B is the sole owner its common stock.
If the parent firm owns between 51% to 99% of the company's stock, the company is considered a "subsidiary", but not a wholly-owned subsidiary.
Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP
A Little More on What is a Wholly Owned Subsidiary
No minority shareholders exist in case of a wholly owned subsidiary. The parent company has control of all the subsidiary company shares.
Interesting, the parent company may or may not have anything to do with the activities and managerial tasks of the subsidiary. For instance, it is possible that a wholly owned subsidiary and a parent company operate independently except for the routine reporting of performance.
Advantages and Disadvantages of a Wholly Owned Subsidiary
- Ability to exercise control or allow company autonomy
- Strategic partnership between parent and subsidiary operations (Vertical/Horizontal Integration)
- Increased resources for the subsidiary (financial, knowledge, support staff, marketing, etc.)
- Regulatory risks (Securities Law, Antitrust Law)
- Increased complexity of management
- Potential undue influence by parent over subsidiary
- Cultural discrepancies between companies
Examples of Wholly Owned Subsidiaries
One of the most famous examples of a wholly owned subsidiary will be Volkswagen AG that fully owns and controls the operations of Volkswagen Group of America Inc. and its distinct brands such as Audi, Bugatti, Volkswagen, etc. Another example will be that of The Walt Disney Company that wholly owns Marvel Entertainment and EDL Holding Company LLC. Starbucks Corp completely owns Starbucks Japan. Key Takeaways
- Business Entities (Intro)
- Why is studying business entities important?
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