A wholly owned subsidiary is a company whose common stock is 100% owned by another company. A company can become a wholly owned subsidiary through an acquisition by a parent company. A majority-owned subsidiary is a company whose common stock is 51% to 99% owned by a parent company.

Advantages of a wholly owned subsidiary

Limited Liability

A corporation exists as a separate legal entity with its own rights and liabilities. The owners of the company have limited liability. This means that, if something goes wrong, they are not personally liable.

Professional management

Shareholders appoint boards of directors to run corporations. The directors in turn appoint managers, whose responsibility is to manage business assets in such a way as to generate profits for the shareholders. This means that there is an efficient allocation of capital and that the business is run in a professional manner. People with expertise in marketing, finance, and other business functions are responsible for the day-to-day decisions of the business.

Good decisions

The rules regarding the ways in which a corporation is structured and run theoretically lead to optimal decision-making. Managers’ report to the board of directors, who run the company on behalf of the shareholders. These three different levels of responsibility, with differing needs, means that decisions should be challenged, and risks assessed carefully. Separating ownership from control creates a set of checks and balances that should ensure the corporation works in

Little shareholder involvement

A disadvantage of the very large numbers of shareholders in a typical public company is that most shareholders in fact have very little involvement in the company. In most companies, large blocks of shares are owned by pension funds and other groups of investors. The very largest funds may be consulted, occasionally, by the board, but it is a near impossibility to consult all shareholders about even major decisions. All shareholders can reasonably do to influence a company's direction is sell their shares.