Learn about wholly owned subsidiaries, subsidiaries, and affiliates. Understand the advantages and disadvantages of each business model, and review real-world examples.
Updated: 11/21/2023
Wholly Owned Subsidiary | Definition & Examples
Table of Contents
- What is a Wholly Owned Subsidiary?
- Advantages of Wholly Owned Subsidiary
- Disadvantages of Wholly Owned Subsidiary
- What is a Subsidiary?
- Lesson Summary
Frequently Asked Questions
What is the difference between a subsidiary and a wholly owned subsidiary?
In a subsidiary, the parent firm owns 51-99 percent of its stock, making them the majority shareholders. In a wholly-owned subsidiary, the parent company holds 100 percent of its stock and is the sole shareholder.
What are the advantages of wholly owned subsidiaries?
Some of the advantages of wholly owned subsidiaries include timely strategic decision making, retained operational control, easier financial reporting, increased financial resources, and diversification
What is an example of a wholly owned subsidiary?
An example of a wholly owned subsidiary is the Airgas company. This company is fully owned by Air Liquide company, meaning it holds all the Airgas company stocks.
Table of Contents
- What is a Wholly Owned Subsidiary?
- Advantages of Wholly Owned Subsidiary
- Disadvantages of Wholly Owned Subsidiary
- What is a Subsidiary?
- Lesson Summary
A wholly owned subsidiary is a business entity whose entire stock is owned or held by another company, referred to as the parent company. A business can become a wholly owned subsidiary either through a spin-off from the parent company or through acquisition.
Working of a Wholly Owned Subsidiary
With the parent company holding all the shares, there are no minority shareholders, and the parent company usually gives the subsidiary the mandate to operate. However, it operates as an independent legal entity since it retains legal control over the operations, products, and processes. The wholly owned subsidiary may be from another industry or a different country than that of the parent company. In this case, the subsidiary will most likely have its own clients, products, and senior management structure.
Wholly Owned Subsidiary Example
The following list offers wholly owned subsidiary examples and recognizes the corresponding parent companies:
- Airgas is a wholly owned subsidiary, fully owned by Air Liquide.
- Volkswagen Group of America is a wholly owned subsidiary of Air France.
- Transavia is a wholly owned subsidiary of Air France.
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- Starbucks Japan is a wholly owned subsidiary of Starbucks Corp.
- Piedmont Airlines is a wholly owned subsidiary of American Airline Group.
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The wholly owned subsidiary model offers advantages from financial, operational, and strategic perspectives.
Financial Advantages
- Simpler reporting mechanisms. Wholly owned subsidiary statements can be consolidated by the parent company into one financial statement.
- Increased financial resources. The parent company can acquire more financial resources from the subsidiary earnings. It can use these extra funds to grow the enterprise or invest in other profitable initiatives, thereby increasing its rate of return.
- Reduction of overall costs. The wholly owned subsidiary and parent company can integrate their information technology and financial systems, resulting in reduced costs and expenses.
Operational Advantages
- Increased control. A wholly owned subsidiary is advantageous to the parent company since it retains operational control, enabling it to make strategic decisions as needed.
- Increased bargaining power. Due to the increase in its size and structure, it puts the two enterprises in a position to negotiate better terms with the suppliers.
- Strategic partnership between the parent and subsidiary operations through vertical integration, thereby making them more competitive.
- Shared resources. The two firms can take advantage of each other's resources, including support staff with technical, management, and marketing expertise. This reduces administrative overlap while promoting improved launch initiatives and better integration of new product development.
Strategic Advantages
- Timely strategic decision-making. This business model allows for quick execution of strategic priorities. For instance, a parent firm can authorize its wholly owned subsidiary to prioritize a new product launch, allowing a promptness that helps the firm become more competitive, propels faster market penetration, and ultimately increases the firm's market share.
- Promotes synergies in information technology, marketing, research, and development that are cost-effective and bolsters long-term strategic positioning and support.
- Affords the parent company the space to diversify and enter new markets while avoiding competition since it can combine with a foreign subsidiary.
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Wholly Owned Subsidiary | Definition & Examples
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