Wholly-Owned Subsidiary - Explained
Subsidiaries and Wholly Owned Subsidiaries
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What is a Wholly-Owned Subsidiary?
A subsidiary is a separate company that is owned by a larger (parent) company. If the parent firm owns between 51% to 99% of the company's stock, the company is considered a "subsidiary".
What is a Wholly-Owned Subsidiary?
A wholly owned subsidiary is a business entity whose equity (ownership interest) is entirely held or owned by the parent company. If the parent firm owns 100% of the company's stock, the company is considered a "subsidiary".
- 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.
Management of a Subsidiary
A 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
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