What are Joint Ventures and Wholly Owned Subsidiaries?
The JVs (Joint Venture) are generally characterized by shared ownership, returns and risks, and also shared governance.
Next, a Wholly owned subsidiary is a company whose entire stock is held by another a parent company. The subsidiary generally operates independently of its parent company, the subsidiary has its own senior management structure, organization layout and clients, this is not an integrated division or unit of the parent company.
The parent company on acquiring all the shares of a wholly owned subsidiary, there are no minority shareholders. The subsidiary with the permission of the parent company operates in their own division, this act makes them an unconsolidated subsidiary.
Wholly Owned Subsidiary
A company whose 100% of the common stock is owned by the parent company is called a wholly owned subsidiary. A company is liable to be a wholly owned subsidiary through an acquisition by a parent company, apart from this a regular subsidiary company is only 51-99% owned by the parent company.
Wholly Owned Subsidiary Example
A wholly owned subsidiary may be in a different country than the parent company. The subsidiary has its own management structure and clients. Owning a wholly owned subsidiary might help the parent company maintain its operations in wide geographic areas and markets or a different separate industry.
Volkswagen AG, owns other distinguished brands that are Audi, Bentley, Bugatti, Lamborghini that are wholly owned by Volkswagen AG.
Another example is Marvel Entertainment Company is the wholly owned subsidiary of The Walt Disney.
Joint Venture Subsidiary
A joint venture (JV) is a type of business arrangement where two or more parties come to an agreement and pool their resources for the purpose of achieving a specific task. This task can be a new project or for any other business activity.
In a joint venture (JV), the participants together are responsible for their own profits, losses and the costs incurred and are associated with them.
In a JV business, there is a partnership in common sense but even in legal structure they are business partners. JVs are used as a common purpose to partner up with a local business and then to enter a foreign market.
Wholly Owned Subsidiary Advantages & Disadvantages
The advantages of a wholly owned subsidiary are hereunder:
Companies that will take control over the suppliers will benefit from the wholly owned subsidiaries.
They can form a vertical integration where the companies are under the same owner.
Wholly own subsidiary companies give space for the parent company to breathe and diversify, meaning they can fully grow and manage risk.
A company can avoid competition while entering a new market by combining with its subsidiary.
For doing business abroad, the wholly owned subsidiary can be utilized for this purpose as well.
The disadvantages of a wholly owned subsidiary are as follows:
The parent company faces more taxes which is levied on these subsidiaries.
Doing diversification with the wholly owned business may hamper focus on itself.
There may be a conflict between the parent and the subsidiary company that will affect the management of both the companies.
Cost structure will shoot up, various other formalities need to be done with the wholly owned subsidiary.
If the wholly owned subsidiary proves inadequate to function, then it will disturb the flow of business of the parent company as well.