Wholly-Owned Subsidiary - Definition
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Wholly Owned Subsidiary Definition
A wholly owned subsidiary is a business firm whose complete stock is held and owned by the parent company. A company can get the title of wholly owned subsidiary if the parent company owns its common stock. If a parent firm owns between 51% to 99% of the companys stock, it is said to be a regular subsidiary. When the parent company is doubtful if it will be able to gain full control over the other company, it may appoint an affiliate, associate, or even an associate firm where it would hold a smaller amount of stake.
A Little More on What is a Wholly Owned Subsidiary
No minority shareholders exist in case of a wholly owned subsidiary as the parent company takes control of all its shares. The subsidiary company owns as per the guidelines of the parent firm. However, it 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 in different countries. The subsidiary company works independently in terms of senior management, clients and products. If the parent company owns a wholly owned subsidiary firm, it may help it in carrying out tasks and functions in different geographical regions, or even different sectors. This may help in balancing out against market fluctuations, and trade policies, and fall in various industries. A subsidiary and wholly owned subsidiary are two different things with the latter being the company whose stocks are 100% held by the parent company.
Advantages and Disadvantages of a Wholly Owned Subsidiary
If the parent company acquires a wholly owned subsidiary company having a sound working history globally, it can have a lesser control over its operations. So, this means that in spite of owning 100% stock in the company, the parent company may not enjoy all controlling benefits. For effectively managing the subsidiary, a company employs special staff. It is comparatively easier to establish common policies and processes than acquiring a firm with a set leadership policy. For preventing the chances of foregoing the intellectual property to other organizations, the parent company implements its data access and security directives for subsidiary firm. As both the parent company and subsidiary utilize the same types of financial policies, effectively allocating admin activities, and formulating same kind of marketing strategies, it helps them in lowering costs. It is at the discretion of the parent company to decide the pattern of asset investment of the wholly owned subsidiary. The parent company may have to shell huge costs for assets for the wholly owned subsidiary, specifically if there are other firms who have interests in the similar business. Also, it may take time for the parent company to create and sustain good relationships with sellers and domestic clients that ultimately affects its productivity. While recruiting staff for a subsidiary based in some other country, cultural diversity may be an issue. As the parent company accepts all the risks associated with a wholly owned subsidiary, such risks rise with domestic laws and policies being different from that of the country where the parent company operates.
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
- A wholly owned subsidiary is an organization whose stock is fully in control by a parent company.
- Wholly owned subsidiaries give the parent company the permission to grow, handle, and lessen the amount of risks involved.
- Wholly owned subsidiaries still have legitimate control over its business activities, procedures, and products.
References for Wholly Owned Subsidiary
Academic research for Wholly Owned Subsidiary
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.