What is a Wholly Owned Subsidiary?
Imagine you have a fun toy store, and you decide to open another toy store in a different neighborhood. If you own both toy stores completely, meaning you are the only person who owns them, then the new toy store is called a wholly owned subsidiary.
Breaking It Down Step by Step:
- When You Own Something: When you buy a toy, like a teddy bear, it belongs to you, and you can decide how to play with it or keep it safe. A wholly owned subsidiary is like you owning a new toy store completely, without sharing it with anyone else.
- Starting a New Business: If your first toy store is very successful, you might want to open another one. You can think of it as a little adventure, going to a new place but with something you already own.
- Keeping Control: Since you own both stores, you can make all the decisions about how they run. You can choose what toys to sell, how to decorate, and even decide when to have sales!
- Why It’s Special: The new toy store is not just a part of your first store, but a separate place that you control entirely. This way, even if other companies want to open their own stores, yours remains uniquely yours!
Example:
Let’s say your first store sells only dolls, and you decide to open another store that sells only action figures. Because you own both, they are like siblings, both part of your toy business family, but each selling different types of toys!
Why Do Companies Use Them?
Companies start wholly owned subsidiaries to:
- Expand into new areas (like different neighborhoods!).
- Try new things without changing what they already do.
- Make sure they keep all the profits (the money they earn) to themselves!
In Conclusion:
A wholly owned subsidiary is when a company creates a new business that it owns completely, just like if you opened another toy store that you controlled all by yourself!