What Is a Wholly-Owned Subsidiary?

A wholly owned subsidiary is a company whose common stock is 100% owned by another com🐽pany. A company may become a wholly-owned subsidiary through an acquisition.

A majority-owned subsidiary is a company whose common stock is 51% to 99% owned by a parent company. The parent company may opt for majority ownership rather than an outright purchase in order to lower the costs and risks involved in the venture. The majority-owned company might then be called an 澳洲幸运5官方开奖结果体彩网:affiliate, associate, or 澳洲幸运5官方开奖结果体彩网:associate company.

Understanding a Wholly-Owned Subsidiary

Hav🤪ing a wholly-owned subsidiary may help the parent company maintain operations in diverse ge💜ographic areas and markets or related industries. These factors help the parent hedge against changes in the market or geopolitical and trade practices.

Because the parent company owns all the shares of a wholly-owned subsidiary, there are no minority shareholders. The 澳洲幸运5官方开奖结果体彩网:subsidiary operates with the permission of the parent company, which may or may not have direct input into the subsidiary’s operations and management. This may make it an 澳洲幸运5官方开奖结果体彩网:unconsolidated subsidiary.

Despite being owned by another entity, a wholly-owned subsidiary may maintain its own managemeౠnt structure, clients, and corporate cult🏅ure.

Nevertheless, when a company is acq🎉uired, its employees worry about layoffs or restructuring. That happens often, as one of the potential benefits to both companies is the opportunity to cut costs by consolidating certain departments.

Accounting for a Wholly-Owned Subsidiary

From an accounting standpoint, a wholly-owned subsidiary remains a separate company, so it keeps its own financial record𒆙s and bank accounts and tracks its own assets and liabilities. Any transactions between the parꦫent company and the subsidiary must be recorded.

Both Generally Accepted Accounting Principles (GAAP) and the 澳洲ꦰ幸运5官方开奖结果体彩网:International Financial Reporting🌜 Standards (IFRS) require companies to report the financial data of their subsidiaries if the parent company is public. This info𓄧rmation can be found in 🌜the parent company's consolidated financial statement.

Advantages and Disadvantages of a Whol💙ly-Owned Subsidiary꧋

A parent company has operational and strategic control over its wholly-owned subsidiaries. How it exercises that control has a great deal to do with the success🌠 or failure of the partnership.

When a company hires its own staff to m🉐anage the s✤ubsidiary, forming common operating procedures is generally less complicated than leaving the established leadership in place.

A parent company that acquires a subsidiary overseas or in an industry that's new to it might take a less heavy-handed approach, leaving current management in place.

Shared Policies and Processes Reduce Costs

The parent company is likely to apply its own data access and security directives for the subsidiary to lessen the risk of losing intellectual property to other companies. Using compatiཧble financial systems, sharing administrative services, and creating similar marketing programs help reduce costs for both companies.

A par☂ent company also directs how its wholly-owned subsidiary’s assets are invested.

Pitfalls for Parent Companies

Acquiring a wholly-owned subsidiary may force the parent company to pay a high price for the subsidiary's assets, especially if other companies are bidding on the same business.

There can be a difficult transi﷽tion period as well. Establishing relationships with vendors and local clients takes time, which may hinder the operations of both companies. Cultural differences can become an issue when hiring staff for an overseas subsidiary.

Finally, the parent company assumes all the risk of owning a subsidiary. That risk may increase when local laws differ significantly from the laws in the parent company's country.

Tax Advantages of Wholly-Owned Subsidiaries

There are tax advant🍬ages for wholly-owned subsidiaries that may be lost if the paren𝔉t company simply absorbs the assets of an acquired company.

When a parent company acquires a subsidiary by buying up that company's stock, the acquisition is a qualified stock purchase for tax purposes. Moreover, any losses by the subsidiary can be used to offset the profits of the parent company, resulting in a lower tax liability.

Sometimes, a subsidiary can♌ do things that the parent company cannot do on its own. For example, a non-profit entity can create a for-profit subsidiary in order to raise revenue. While the subsidiary would be subject to federal income taxes, the parent company would remain exempt.

Subsidiary vs. Wholly-Owned Subsidiary

A 澳洲幸运5官方开奖结果体彩网:subsidiary is a company whose stock is more than 50% owned by a parent compan💛y or a holding company. That gives the parent company a controlling interest in the subsidiary's operations, management, and profits. However, the subsidiary still has financial obligations to its minority shareholders.

A wholly-owned subsidiary is 100% owned by the parඣent company, with no minority shareholders.

Examples of Wholly-Owned Subsidiaries

Volkswagen Group is an example of a wholly-owned subsidiary system. The parent company wholly owns the automotive brands Audi, Bentley, Porsche, and Lamborghini, as well as Volkswagen.

In addition, Marvel and Lucasfilm are now 澳洲幸运5官方开奖结果体彩网:wholly-owned subsidiaries of The Walt Disney Company.

The Bottom Line

Acquiring a wholly-owned subsidiary can be a relatively cost-efficient way for a company to expand its product line or its geographic reach. It may acquire a competitor, thus expanding its own market share, or invesꦛt in a part of its own supply chain, making its production process more efficient.

The difficulty comes after the deal is done. Combining some operations is efficient. Replacing some management may be necessary. But these changes must be ma🌱de while avoiding disruption at the subsidiary as much as possible.