Subsidiary and Wholly Owned Subsidiary are two different entities which are often confused as one. A subsidiary company is a type of company that is owned or incorporated by a large corporation or company. The company incorporating or opening the subsidiary is called as the parent or the main company. The parent company owning the subsidiary company in India owes more than 50% of the share capital issued for such an organization. This type of entity must not be confused with any type of mergers that the parent company has purchased or dissolved any organization identical to it. For regulation and taxation a subsidiary company is treated as a separate legal entity from its parent company.
Wholly-Owned Subsidiary Company:
A wholly-owned subsidiary company is a type of company who’s all the stocks are owned by another company. This implies that its common shares and stocks are traded publically and there are no individual shareholders in the company. It is a separate legal entity that is organized as a corporation where it has proper management and structure. The day to day operations of the wholly-owned subsidiary company is controlled by the parent company. It allows some independence of operations.
Advantages and Disadvantages of Subsidiary Company:
Advantages of Subsidiary Company-
- It has tax advantages and legal protections that are considerable.
- It can offset its losses and gains in one part of the business with the other part.
- Some of the countries also allow the subsidiary company to file tax returns for all the profits obtained in their territory.
- The credit claims and liabilities of the subsidiary are locked that cannot be transferred to the parent company.
- It allows joint ventures with other companies that own a portion of the operation of the new business.
Disadvantages of Subsidiary Company-
- Incorporating a subsidiary company requires lengthy and expensive paperwork and legalities.
- The controlling system in the company becomes a problem at a certain level as and when it is partially owned by a different organization.
Advantages and Disadvantages of Wholly-Owned Subsidiary Company:
Advantages of Wholly-Owned Subsidiary Company-
- It can offer security and proper protection for the trade secrets, information related to proprietorship, technical knowledge and expertise in the company.
- It also offers control machinery on the operations of the company that are of high degree and are well-guarded.
- A wholly-owned subsidiary company also improves the coordination of the global strategic level by offering a very effective and strong control over the global operations carried out by the company. As a result this can be of great significance to the parent company which needs to rely on the foreign managers completely for managing the operations and functions of the various plants and units.
Disadvantages of Wholly-Owned Subsidiary Company-
- There can be investment problems in a wholly-owned subsidiary in India by Foreign Company because setting it up requires a huge amount of capital.
- As this is new and the market trends can be unfamiliar and the fluctuation rate is high. Hence it can have high risk of failure as the fear of making wrong decisions is always there.
- There is an additional risk to the wholly-owned subsidiary company of becoming a subsidiary company.