Any company which is completely owned by another company such as a parent or holding company is known as a wholly owned subsidiary. Its stocks are 100% owned by its parent company who has to power to control the working of the company. There are no individual shareholders and that the common stock is not publicly traded. The parent company is responsible for appointing the board of directors for its subsidiary unit. However, in terms of legal purposes, a wholly-owned subsidiary is a separate entity. Thus the government laws imposed on a subsidiary company does not apply to its parent company.
A wholly owned subsidiary is a separate, distinct legal entity for tax, regulations and liability purposes. It enables parent company to maintain operations in foreign lands, market areas, and even entirely different industries, creating an important hedge against changes in the market, geopolitical and trade practice changes, and declines in industry sectors. A wholly owned subsidiary helps to manufacture or market brand types owned by the parent company where the parent company holds full access to proprietary technology, production, management and profit of its subsidiary company.
The parent company owns all of the shares of its wholly-owned subsidiary, and there are no minority shareholders. The subsidiary continues to operate with the permission of the parent company. A company may continue the operations of a wholly owned subsidiary rather than merge and integrate their operations for a variety of reasons
One can also own its subsidiary in a foreign land. There are two ways for it.
Reliance Industrial Investments and Holdings Limited (RIIHL), is a wholly owned subsidiary of the Reliance Group of Company.
Concorde Motors India Ltd. (CMIL), Tata Motors Insurance Broking and Advisory Services Limited (TMIBASL) are few examples of a fully-owned subsidiary of Tata Motors.
Volkswagen Group of America, Inc., includes brands such as Audi, Bentley, Bugatti, Lamborghini, and Volkswagen, which is a wholly owned subsidiary of Volkswagen AG.
, Marvel Entertainment and EDL Holding Company LLC are wholly owned subsidiaries of The Walt Disney Company.
The concept of wholly owned subsidiary comes with its own set of pros and cons. As there is a difficulty in obtaining licensing regulations for a new corporation, it becomes easy for a parent company to acquire a subsidiary that already has the necessary operating permits and thus can begin conducting business sooner and with less administrative difficulty. Parent companies often choose subsidiaries that are vital in their business success. The parent company can also exert full control over the operations of its subsidiary even in a foreign nation. The parent organisation is not required to reveal its technology or competitive advantages to others as the parent organisation looks after the whole activities of subsidiary all alone.
Apart from having some advantages of a subsidiary, there are some disadvantages as well. As the parent company is in full charge of its subsidiary it needs to make 100% equity investment in its subsidiary and this type of trade is not reasonable for little and medium-size organisations as they have limited assets with them to put resources into any foreign nations. Additionally, the parent organisation needs to tolerate the whole misfortunes coming about because of losses of the company activities on its own, as it owns 100% equity. A few nations are also hesitant to set up entirely owned subsidiaries by outsiders in their nation.