Wholly Owned Subsidiary: Its Definition and Examples


Key Takeaway:

  • A wholly-owned subsidiary is a company that is entirely owned and controlled by another company, referred to as the parent company.
  • Establishing a wholly-owned subsidiary has several advantages, including operational control, protection of intellectual property, and entry into new markets.
  • There are three main types of wholly-owned subsidiaries: greenfield investment, acquisition, and joint venture.
  • Examples of successful wholly-owned subsidiaries include Toyota Motors, Samsung Electronics, and Sony Pictures Entertainment.

Are you wondering what a wholly-owned subsidiary is and how it might benefit your business? Discover the definition and examples of a wholly-owned subsidiary, and learn how to form one for your own business.

Definition of wholly-owned subsidiary

A wholly-owned subsidiary is a company entirely owned by another entity, typically a parent company. The parent company holds 100% of the subsidiary's shares, allowing it complete control over the subsidiary's operations, policies, and decisions. The subsidiary functions as a separate legal entity from the parent company, and as such, carries its own liabilities and assets. The parent company benefits from the subsidiary's profits; however, it is also responsible for its losses. In essence, a wholly-owned subsidiary is an extension of the parent company, allowing it to expand its reach or diversify its offerings.

Wholly-owned subsidiaries are common among multi-national corporations that seek to expand into new markets or diversify their product lines. They allow the parent company to maintain complete control over operations while minimizing risks associated with entering new territories. They also help parent companies avoid regulatory hurdles and local taxes associated with setting up a new business entity. Wholly-owned subsidiaries can exist in various forms such as limited liability partnership, sole proprietorship, or corporation.

One famous example of a wholly-owned subsidiary is Disney India. In 2012, Disney acquired UTV Software Communications, a media corporation based in Mumbai. Disney then re-branded the company as Disney India, using it as a launching pad to expand its brand and offerings in the country. Today, Disney India produces films, operates theme parks and runs a TV channel in collaboration with a local media house. Their wholly-owned subsidiary allowed Disney to reap the benefits of the Indian market, while minimizing the risks associated with starting a new business from scratch.

Advantages of establishing a wholly-owned subsidiary

Wholly-owned subsidiaries offer a plethora of advantages to businesses. They serve as a vital means for expansion into new markets, increasing production capacity, and diversifying revenue streams. Additionally, they can offer opportunities to reduce risks by allowing greater control over operations, finances, and strategic decision-making. Overall, establishing a wholly-owned subsidiary can help businesses capitalize on unique market opportunities while minimizing potential risks. For instance, Walt Disney's acquisition of Pixar Animation Studios in 2006 as a wholly-owned subsidiary propelled Disney forward in the animation industry, resulting in significant financial gains and expanded creative possibilities for the company.

Types of wholly-owned subsidiaries

Wholly-owned subsidiaries are a common way for businesses to expand and gain control over new markets. These subsidiaries are fully owned by the parent company, allowing them to exercise complete control over operations and finances.

TypeDescription Horizontal A subsidiary that operates in the same industry as the parent company Vertical A subsidiary that operates in a different stage of the supply chain as the parent company Direct A subsidiary that is wholly-owned by the parent company Indirect A subsidiary that is owned by a subsidiary of the parent company

Horizontal wholly-owned subsidiaries are often used to expand within the same market, while vertical ones can help integrate different stages of the supply chain. Direct and indirect are simply terms used to describe the level of ownership within the parent company's structure.

Wholly-owned subsidiaries have been around for decades, with some of the earliest examples dating back to the 19th century. As companies sought to expand across borders, wholly-owned subsidiaries became a popular way to do so while maintaining control over overseas operations.

Examples of successful wholly-owned subsidiaries

In the following paragraphs, we will explore successful wholly-owned subsidiaries of various companies. These subsidiaries are 100% owned by their parent companies and operate independently.

A table showcasing some noteworthy examples of wholly-owned subsidiaries is given below.

Parent Company Wholly-Owned Subsidiary Industry Alphabet Inc. Google LLC Technology Amazon.com Inc. Amazon Web Services Inc. Cloud Computing Coca-Cola Company Coca-Cola European Partners plc Beverages Nestle S.A. Nespresso S.A. Coffee

These subsidiaries have proven to be successful due to their ability to operate independently while maintaining a close relationship with their parent companies. Furthermore, they have access to their parent company's resources, which allows them to innovate and grow in their respective industries.

It is important to note that successful wholly-owned subsidiaries are not limited to these examples as there are several other notable ones around the world.

These wholly-owned subsidiaries have a rich history and have played a significant role in their parent companies' growth and global expansion. For example, Google LLC, which is a wholly-owned subsidiary of Alphabet Inc., has become one of the most recognized and valuable brands globally, with a current market capitalization of over $1 trillion.

Some Facts About What Is a Wholly-Owned Subsidiary? Definition and Examples:

  • ✅ A wholly-owned subsidiary is a company that is completely owned and controlled by another company. (Source: Investopedia)
  • ✅ It enables the parent company to retain full control over its operations and assets while limiting liability risks. (Source: The Balance)
  • ✅ A wholly-owned subsidiary can be created through organic expansion, acquisition, or greenfield investment. (Source: Deloitte)
  • ✅ Wholly-owned subsidiaries are commonly used for expanding into new markets, protecting intellectual property, and separating business segments. (Source: Forbes)
  • ✅ Examples of wholly-owned subsidiaries include Google's ownership of YouTube, Facebook's ownership of Instagram, and Amazon's ownership of Whole Foods. (Source: The Wall Street Journal)

FAQs about What Is A Wholly-Owned Subsidiary? Definition And Examples

What is a wholly-owned subsidiary?

A wholly-owned subsidiary is a company that is entirely owned and controlled by another company, known as the parent company. The parent company has full ownership of the subsidiary and can make all decisions related to its operations.

What is the definition of a wholly-owned subsidiary?

A wholly-owned subsidiary is a legal entity that is completely owned by another company. The parent company has full control over the subsidiary's operations, financial decisions, and management. The subsidiary operates independently, but its actions are ultimately controlled by the parent company.

What are some examples of wholly-owned subsidiaries?

Some examples of wholly-owned subsidiaries include Jaguar Land Rover, which is wholly owned by Tata Motors, and Nestle Purina Petcare, which is a wholly owned subsidiary of Nestle. Other examples include Google's subsidiary, Waymo, and Wal-Mart Stores' subsidiary, Sam's Club.

Why would a company want to create a wholly-owned subsidiary?

A company may want to create a wholly-owned subsidiary for a variety of reasons, such as expanding into new markets, diversifying its portfolio, or reducing risk. By owning a subsidiary, the parent company can maintain control over the subsidiary's operations, while also insulating itself from any potential risks or liabilities.

What are the advantages of having a wholly-owned subsidiary?

The advantages of having a wholly-owned subsidiary include having complete control over the subsidiary's operations, being able to make strategic decisions quickly, and being able to keep profits within the parent company. Additionally, owning a subsidiary can allow a company to expand into new markets or industries.

Can a wholly-owned subsidiary have its own subsidiaries?

Yes, a wholly-owned subsidiary can have its own subsidiaries. These subsidiaries are known as "owned or controlled subsidiaries." The parent company has control over the wholly-owned subsidiary and can make decisions related to its operations, while the wholly-owned subsidiary has control over its owned or controlled subsidiaries.