When all of your company’s stock is owned by a parent company, you may find yourself asking who is really in control. That depends partly on whether the wholly owned subsidiary was acquired or spun off. Location is another factor. If you’re interested in being a parent company, you may want to look at things from another angle. Parent companies take on the bulk of the risk and should choose wisely. There are many factors to consider depending on what side of the coin you’re on, when it comes to operating your business. Let’s look at some.
Sometimes a wholly owned subsidiary is in a different country than its parent company. This often creates more autonomy within the subsidiary. They often have their own management, clients and products. Many of these wholly owned subsidiaries get to do things their own way when they’re a world away. Of course, this isn’t always the case. Some parent companies just want to have operations in wider geographical regions or a completely different industry. This is helpful should the market shift or an industry start to decline. For wholly owned subsidiaries in the same locale as the parent company, there is a greater likelihood that the parent company will have a heavier hand in the way the business is run. But again, there are factors that will warrant otherwise.
When operating a wholly owned subsidiary it is possible to share some of the costs of doing business. A parent company will sometimes apply its own data access points and cybersecurity directives and implementations to safeguard the subsidiary, it’s data and its intellectual property. This means that a company now has more time, energy and resources to devote to other aspects of its business. And sometimes a parent company will hire its own staff to run the subsidiary, which means the wholly owned subsidiary doesn’t have to worry about some of the hiring. Being able to focus on other aspects of growing a business is a big bonus for many business owners.
If you’re the parent company there is plenty to be considered when creating or acquiring a wholly owned subsidiary. You don’t want to get into a high stakes bidding war when making an acquisition and overpay for assets. You’ll need to take care to be sensitive to cultural differences when working in another country. But one of the big draws to operating a wholly owned subsidiary as a parent company is the ability to diversify, manage and, in some instances, reduce risk. As the parent entity, you are able to have absolute control over a wholly owned subsidiary. The question you have to answer is whether or not that is the way you want or should run the offshoot.
There are plenty of considerations to be made when you’re creating a wholly owned subsidiary or acquiring one. It can be very advantageous to all parties involved. Be sure to have an exit strategy, because it never hurts to be prepared. That’s why it’s a good idea to consult with a business attorney so that you can increase the likelihood of having a profitable outcome.