A wholly-owned subsidiary is a business entity of which the parent company holds all ownership shares. This corporate setup means that the parent company has complete control over the company. Wholly-owned subsidiaries give the parent company the ability to diversify their products, streamline management operations and possibly reduce risk.

The advantages of this corporate structure is that the subsidiary entity is a distinct legal entity from the parent corporation, but the parent bears complete ownership and control over the subsidiary. Without having to worry about minority or outside shareholders, the parent company has total control over the direction and decisions of the subsidiary, including dividends, investments, strategic directions and profit use.

The concept of the wholly owned subsidiary is also used to determine financial liabilities and to differentiate the consolidated financial statement of the parent company from its individual financial statement. By default and through contractual agreements, the subsidiary belongs to the parent and is largely financially dependent on them. As a result, the net worth of the parent is increased by the subsidiary’s assets and the parent gains the ability to make company decisions more efficiently due to the subsidiary’s activities being serviced under the parent company's umbrella.

The parent company of a wholly-owned subsidiary can take several forms of ownership and make numerous business functions available to the subsidiary company. These range from providing name brand awareness and extended capital from parent resources, to offering standard services like human resources, data processing, purchasing or other administrative functions.

Entrepreneurs across a wide range of industries consider setting up a wholly-owned subsidiary to leverage the parent company’s resources and gain access to their established financial and operational infrastructure. This corporate structure is also used for operations for which the parent company doesn’t want the liabilities attributed back to them, protections against potential lawsuits and generally easier access in overseas locations without having to go through the costly and time-consuming process of forming a new company.

In a nutshell, a wholly-owned subsidiary is a separate entity that is 100 percent owned by the parent company, while still maintaining its distinct legal identity. This corporate structure offers a range of benefits, such as access to the parent company's resources, protection against legal liability and easier entry into overseas markets. This structure has become an increasingly popular option for businesses seeking to expand into new markets, diversify their product lines and reduce their risk.