Wholly Owned Subsidiary
What it is:
A wholly owned subsidiary is a subsidiary company whose parent company owns 100% of the company's outstanding common stock.
How it works (Example):
In a wholly owned subsidiary, the parent company owns all of the shares of the company and there are no minority shareholders. The subsidiary continues to operate with the permission of the parent company. The parent company may or may not have direct input into the subsidiary operations and management.
A company may continue the operations of a wholly owned subsidiary rather than merge and integrate their operations for a variety of reasons. For example, the subsidiary may be located in a country different from that of the parent company. Having a subsidiary may be important for a variety of tax and tariff reasons. Another reason may be to preserve the brand and identity in of the wholly owned subsidiary.
Why it Matters:
Wholly owned subsidiaries enable holding companies (i.e. the parent company) to maintain operations in diverse geographic areas, market areas, and even entirely separate industries, creating an important hedge against changes in the market, geopolitical and trade practice changes, and declines in industry sectors.
