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What is a Wholly-Owned Subsidiary?

It might be easier for a company to operate a business in a foreign country as a wholly owned subsidiary.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 August 2014
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When a subsidiary is considered to be wholly owned, this indicates that all of the outstanding common stock that is currently issued by the company is in the hands of a single holding company. Essentially, a wholly-owned subsidiary is a business that is completely owned by another entity. The subsidiary continues to operate with the permission of the holding company, either with or without direct input from the controlling entity.

There are several reasons why a company would choose to operate a wholly owned subsidiary rather than simply absorb the acquired company into the central corporate operation. One of the most common reasons is a matter of location: the subsidiary may physically reside in a different country from the holding company. When this is the case, there may be compelling financial and regulatory factors that make it much more financially sound to allow the company to continue more or less autonomously.

Name value is another common reason. Often, a well-known and respected corporation is acquired by another entity that has no name recognition in that particular market. Rather than spend huge amounts of time and resources to create a reputation, the holding company will simply decide to remain in the background. This allows the wholly-owned subsidiary to continue to enjoy the current name recognition and market share, while being able to work with the resources of the parent company to find ways to enhance that reputation.

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In some instances, the subsidiary will be an investment into one market sector by a company that is more closely associated with a completely different industry. This allows the parent company to diversity its holdings and therefore become less susceptible to abrupt changes in consumer tastes and demand. It is not uncommon for a wholly-owned subsidiary to provide a steady flow of revenue during a period of financial decline for the parent company, keeping both entities afloat until the holding company regains profitability.

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anon273310
Post 4

What could happen to the hiring process of a wholly owned subsidiary when the parent company sold 100 percent of its shareholding to a bigger company?

anon170104
Post 3

The requirement of minimum number of members is not fulfilled in case of a Wholly Owned Subsidiary. Is this true?

anon33256
Post 2

Company A transfers Assets and Liabilities of $x amount to Company B for shares in Company B valued at$x. Company B becomes a wholly owned subsidiary of Company A. A later revaluation of net assets transferred (based on transfer date) result in a deficit of $y. How do you treat $y in:

1. books of Company A

2. books of Company B

3. In the consolidated accounts

jlg2009
Post 1

If I set up a wholly owned subsidiary, do I need to actually issue stock to the parent? How do I transfer capital to the subsidiary, must I value and issue additional stock each time?

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