What is a wholly owned subsidiary? And how it works

When a company is owned either partially or completely by an outside entity, it’s known as a subsidiary. The level of ownership affects the name of the subsidiary and the way it operates. When a company owns less than 50% of the smaller business, that is known as an equity investment. The smaller business has more say in the decision-making process, but it doesn’t fully exercise control over the parent company.

However, when a company owns between 51% to 100% of the smaller business, then it has a controlling interest, meaning that it can dictate all final decisions to benefit the smaller business. This is known as being a parent company. 

When the company owns 100% of the shares of its daughter company, that second company is known as a wholly owned subsidiary. This represents the subsidiary being fully controlled by the owning company. In this case, there are no minority shareholders, and stock isn’t publicly traded. 

What is a wholly owned subsidiary?

A wholly owned subsidiary is a company that is 100% owned by another company, called the parent company. This complete ownership gives the parent full control over the subsidiary's decisions, operations, and strategic direction.

The subsidiary operates as a separate legal entity with its own corporate structure, but the parent company holds all voting rights. This structure is popular for international expansion and risk management, letting companies enter new markets while keeping liabilities separate. However, this strategy requires careful financial planning.

Is a wholly owned subsidiary its own company?

A wholly owned subsidiary is considered its own distinct legal entity. It will have its own operations, its own structure, and its own board of directors. A parent company may exert total control over a wholly owned subsidiary, but each company has its own liabilities, tax requirements, and leadership.

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In a wholly owned subsidiary, the business is typically controlled directly by the parent company. Most commonly, the daily operations of a wholly owned subsidiary are directed by the parent company, rather than controlled by management.

How wholly owned subsidiaries work

So, how does this structure work in practice? A wholly owned subsidiary operates as an independent business while being entirely controlled by its parent company.

Here's how the relationship typically functions:

• Parent company control: Owns all shares, appoints board members, and sets strategic direction

• Subsidiary independence: Maintains separate legal status, management team, and day-to-day operations

• Operational integration: Parent can share resources and align strategies while benefiting from local expertise

This dual structure lets companies maintain control while keeping operations flexible and liabilities separate.

Wholly owned subsidiary vs. other business structures

Confused about which business structure fits your expansion goals? Here's how a wholly owned subsidiary compares to other common options:

For companies seeking full control with liability protection, a wholly owned subsidiary often provides the best balance—though it requires more investment than alternatives like partnering with an employer of record.

Advantages of a wholly owned subsidiary

Why do companies choose wholly owned subsidiaries? Here are the key advantages that make this structure attractive:

• Market entry advantages: Acquire companies with existing permits and approvals, bypassing complex regulations that make starting from scratch difficult

• Complete operational control: Direct hiring, daily operations, investments, and strategic decisions without input from minority shareholders

• Strategic integration: Gain control over supply chain partners, proprietary technologies, and manufacturing processes for competitive advantage

• Tax optimization: Consolidate financials across entities, offset gains with losses, and access subsidiary-specific tax benefits

These benefits make wholly owned subsidiaries particularly valuable for companies expanding internationally or seeking to control key business relationships.

Disadvantages of a wholly owned subsidiary

One major issue with wholly owned subsidiaries is that they can be extremely expensive to acquire. It's common for potential parent companies to find themselves embroiled in a bidding war, especially if the future subsidiary produces goods or owns assets crucial to either business's strategy.

After acquiring a business, the parent company also takes on all of that subsidiary's risk and liability. This can be a financial burden, especially when the wholly owned subsidiary operates outside the parent company's normal purview or in a new country.

Finally, the acquisition of a new company can cause stress on the daughter company, especially if the parent company has a drastically different culture than its new subsidiary. Culture tensions can lead to a large exodus of employees who don't want to adjust to a new culture or who find themselves no longer invested in the company culture. This loss of talent can be costly, and it will affect morale. Developing a strategy that accounts for these challenges can mitigate the risk of entering into this type of relationship.

Do wholly owned subsidiaries have their own accounting?

Wondering how accounting works with subsidiaries? Since each wholly owned subsidiary is a separate legal entity, it can handle its own accounting independently.

Companies typically choose between two approaches:

• Independent accounting: The subsidiary manages its own payroll, revenue reports, and financial statements

• Consolidated accounting: The parent company combines financial data from both entities for reporting and tax purposes

Many companies find consolidation beneficial for getting a complete financial picture and potential tax advantages.

Are there limitations to international subsidiaries?

The only limitations are that subsidiaries must strictly comply with local laws and regulations, a prime example being the European Union's comprehensive data protection framework (GDPR), which affects any business that processes the personal data of EU residents. Some parent companies even change their own policies, or even the policies of their subsidiaries, to adapt to the country's laws in order to operate safely.

Simplify global expansion with Oyster

Setting up a wholly owned subsidiary requires significant investment—from legal fees and registration costs to ongoing compliance management. The process can take months and demands deep knowledge of local regulations, tax laws, and employment requirements.

For companies looking to expand globally without the complexity of entity setup, there's an alternative. Oyster's global employment platform enables you to hire full-time employees in over 180 countries compliantly, without establishing a local subsidiary. You maintain control over your team's work and direction while Oyster handles the legal employment, payroll, benefits, and compliance.

This approach lets you test new markets, scale quickly, and focus on growth rather than administrative burden. Whether you're hiring your first international employee or building distributed teams across multiple countries, start hiring globally with Oyster and unlock talent worldwide.

FAQs

Does wholly-owned subsidiary mean 100% ownership?

Yes, "wholly owned" means the parent company owns 100% of the subsidiary's shares with no minority shareholders.

How can you tell if a company is a wholly-owned subsidiary?

You can check the parent company's annual reports or SEC filings, which list subsidiaries and ownership percentages, though financial statements for the acquisition may not be filed until 71 calendar days after the initial report.

What's the difference between a wholly-owned subsidiary and a branch office?

A subsidiary is a separate legal entity with its own liabilities, while a branch office is just an extension of the parent company that assumes all risks directly.

Disclaimer: This blog and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.