Subsidiary vs. Wholly Owned Subsidiary: An Overview
A regular subsidiary company has over 50 percent of its voting stock (it can be half, plus one share more) controlled by another company, though, for liability, tax, and regulatory reasons, the subsidiary and parent companies remain separate legal entities. The parent company is typically a larger business that often has control over more than one subsidiary. Parent companies may be more or less active concerning their subsidiaries, but they always hold a controlling interest to some degree. The amount of control the parent company chooses to exercise usually depends on the level of managing control the parent company awards to the subsidiary company management staff.
Parent companies may be more or less active concerning their subsidiaries, but they always hold a controlling interest to some degree.
Wholly Owned Subsidiary Company
A subsidiary company is considered wholly owned when another company, the parent company, owns all of the common stock. There are no minority shareholders. The subsidiary's stock is not traded publicly. But it remains an independent legal body, a corporation with its own organized framework and administration. Its day-to-day operations are likely directed entirely by the parent company, however.
Wholly Owned Subsidiary
The setup of a wholly owned subsidiary is advantageous in a number of ways. In some countries, licensing regulations make the formation of new companies difficult or impossible. If a parent company acquires a subsidiary that already has the necessary operational permits, it can begin conducting business sooner and with less administrative difficulty. Another advantage of wholly owned subsidiaries is the potential for coordination of a global corporate strategy. A parent company usually selects companies to become wholly owned subsidiaries that it considers vital to its overall success as a business.
In other instances, when entering a foreign market, a parent company may be better off by putting up a regular subsidiary than a wholly owned subsidiary. Local laws may set up ownership restrictions that make a wholly owned operation impossible. Even without legal barriers, there may be other advantages: The regular subsidiary can tap partners that have the expertise and familiarity it needs to function with local conditions.
One example is CNN, which set up a subsidiary in the Philippines. CNN could not put up a wholly owned company in the Philippines because its constitution forbids total foreign ownership of any form of media. The solution was to partner with the new owners of a TV station on the verge of closing. The new owners were well aware of the fierce competition in broadcast media in the country, which is dominated by two giants. The solution was to go for a fresh niche by rebranding itself as a local news network that served as a subsidiary of CNN.
- The setup of a wholly owned subsidiary is advantageous in a number of ways.
- Whether wholly owned or regular, subsidiaries are also referred to as daughter companies of parent companies.
- When entering a foreign market, a parent company may be better off by putting up a regular subsidiary than a wholly owned subsidiary.