Wholly owned subsidiary definition
/What is a Wholly Owned Subsidiary?
A wholly owned subsidiary is an entity whose stock is entirely owned by another entity. The owning entity is called the parent. A subsidiary may become wholly owned as the result of an acquisition, or because the parent spun off certain assets and liabilities into a separate entity. Larger organizations are more likely to have wholly owned subsidiaries.
When a subsidiary is not wholly owned, third parties also have an ownership interest in the subsidiary. This situation may arise when it was not possible for the owning entity to purchase all existing shares in the subsidiary, or when the owning entity chooses to limit the total amount of its investment in the subsidiary.
A parent entity may have a large number of wholly owned subsidiaries, depending upon the extent to which it is managing its operations based on the preceding factors. This is especially common when the parent entity operates in a large number of countries, each with its own wholly owned subsidiary.
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Advantages of a Wholly Owned Subsidiary
A wholly owned subsidiary offers several strategic and operational advantages to its parent company. It allows the parent to maintain full control over the subsidiary’s operations, policies, and financial decisions, ensuring alignment with broader corporate objectives. This structure can protect the parent from legal or financial liabilities, as the subsidiary is a separate legal entity. Additionally, it enables the parent to enter new markets, diversify product lines, or manage regional operations with reduced risk. The parent can also consolidate financial results, streamline tax planning, and shift resources efficiently between entities to maximize overall profitability and regulatory compliance.