Wholly-Owned Subsidiary - Explained
Subsidiaries and Wholly Owned Subsidiaries
Written by Jason Gordon
Updated at July 1st, 2021
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Table of Contents
What is a Wholly-Owned Subsidiary?A Little More on What is a Wholly Owned SubsidiaryAdvantages and Disadvantages of a Wholly Owned SubsidiaryExamples of Wholly Owned SubsidiariesAcademic ResearchWhat 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
Academic Research
- The choice between joint venture and wholly owned subsidiary: An institutional perspective, Yiu, D., & Makino, S. (2002). The choice between joint venture and wholly owned subsidiary: An institutional perspective. Organization science, 13(6), 667-683.
- National culture, transaction costs, and the choice between joint venture and wholly owned subsidiary, Makino, S., & Neupert, K. E. (2000). National culture, transaction costs, and the choice between joint venture and wholly owned subsidiary. Journal of International Business Studies, 31(4), 705-713.
- Wholly owned subsidiary versus technology licensing in the worldwide chemical industry, Arora, A., & Fosfuri, A. (2000). Wholly owned subsidiary versus technology licensing in the worldwide chemical industry. Journal of International Business Studies, 31(4), 555-572.
- Wholly owned foreign subsidiary relation-based strategies in volatile environments, White III, G. O., Hemphill, T. A., Joplin, J. R., & Marsh, L. A. (2014). Wholly owned foreign subsidiary relation-based strategies in volatile environments. International Business Review, 23(1), 303-312.[PDF]
- How Can the Problem of the Liability of a Parent Company for Price Fixing by a Wholly-owned Subsidiary Be Resolved?, Lang, J. T. (2014). How Can the Problem of the Liability of a Parent Company for Price Fixing by a Wholly-owned Subsidiary Be Resolved?. Fordham International Law Journal, 37(5), 1481.
- Income Tax Status of the Wholly Owned Subsidiary Corporation, Marshall Jr, C. M. (1950). Income Tax Status of the Wholly Owned Subsidiary Corporation. Tex. L. Rev., 29, 87.
- Parent's Liability: New case extending the presumption of liability of a parent company for the conduct of its wholly owned subsidiary., Winckler, A. (2011). Parent's Liability: New case extending the presumption of liability of a parent company for the conduct of its wholly owned subsidiary. Journal of European Competition Law & Practice, 2(3).
- Entry Mode Choice between Wholly-Owned Subsidiary and Joint Venture: A Case Study of the Automotive Industry in India., Moon, H. C., & Kwon, D. B. (2010). Entry Mode Choice between Wholly-Owned Subsidiary and Joint Venture: A Case Study of the Automotive Industry in India. International Journal of Performability Engineering, 6(6).
- The choice between an international joint venture and a wholly-owned subsidiary in a developing country under technology spillover effects, Leung, W. F. (1995). The choice between an international joint venture and a wholly-owned subsidiary in a developing country under technology spillover effects. Open economies review, 6(4), 341-368.
- Entry-mode choice between a wholly-owned subsidiary or an equity joint venture by Japanese manufacturing entrants in North America., Tang, Y. (1995). Entry-mode choice between a wholly-owned subsidiary or an equity joint venture by Japanese manufacturing entrants in North America.