Why wholly owned subsidiary matters to a first-time founder
This structure can separate operations, assets or jurisdictions while leaving the parent in full ownership. It does not erase risk: directors owe duties to the subsidiary, group transactions need proper records, and guarantees or poor governance can expose the parent. Tax, reporting and liability outcomes depend on local law.
Examples of wholly owned subsidiary
A UK parent forms a German subsidiary and subscribes for all 25,000 shares. The subsidiary signs local customer and employment contracts in its own name. The group keeps separate bank accounts and accounts, documents service charges between the companies and obtains advice on German corporate, payroll and tax obligations.
Common misunderstanding
It is not a branch or an internal department. A subsidiary is its own legal entity, even when one parent owns every share and appoints its board. “Wholly owned” describes ownership, not freedom from local filings, capital rules, director duties, insolvency law or transfer-pricing requirements.
When to use it
Consider one before entering a market, isolating a business line or holding particular intellectual property or assets. Compare it with a branch and local partnership on cost, liability, tax and administration. Use local legal and tax advisers before incorporation; maintaining separate governance matters after formation too.