Wholly Owned Subsidiary Flashcards, test questions and answers

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What is Wholly Owned Subsidiary?

A wholly owned subsidiary is a business entity that is completely owned by another company, known as the parent company. This type of arrangement allows companies to diversify their operations, expand into new markets and access new resources. It also gives them greater control over the activities of their subsidiaries. Wholly-owned subsidiaries are typically formed when a parent company acquires another business in its entirety. The parent company will take on all liabilities and assets associated with the subsidiary and assume full responsibility for its operations. Depending on the nature of the transaction, this could include taking ownership of any debt or equity held by third parties in the target company as well as any real estate holdings or intellectual property rights associated with it. The benefits of establishing a wholly-owned subsidiary include access to additional capital and resources from the parent company, increased flexibility in terms of product offerings and pricing, and increased control over day-to-day operations. Additionally, having an established presence in a foreign market can help facilitate international transactions more easily than relying solely on exports from home bases or franchises located abroad. On top of these advantages, there can be significant tax savings when operating through a wholly-owned subsidiary since income earned by such entities may be eligible for lower taxes than those imposed on corporate earnings at both federal and state levels. However, setting up a wholly owned subsidiary may not always be ideal due to some potential drawbacks such as additional costs related to establishing separate legal entities including filing fees and accounting costs; compliance with local laws related to foreign ownership; potential limitations on repatriation of profits back to home countries; and difficulties managing multiple businesses from afar which requires significant oversight from senior leadership teams at both parent companies as well as subsidiaries themselves. Overall, establishing a wholly owned subsidiary can offer numerous advantages for companies looking to expand into new markets but it is important that they consider all possible risks before committing to such an arrangement so that they can ensure long term success for their businesses moving forward.