The definition
A wholly owned subsidiary is a company in which a single parent company owns all of the shares. The parent controls the board and every major decision, but the subsidiary is still a separate legal person: it signs its own contracts, holds its own assets and is responsible for its own debts.
Subsidiary, wholly owned subsidiary, affiliate and branch
| Term | Ownership | Separate legal entity? |
|---|---|---|
| Wholly owned subsidiary | 100% by the parent | Yes |
| Subsidiary | More than 50% (control) | Yes |
| Affiliate / associate | A minority stake, often 20–50% | Yes |
| Branch | Part of the parent itself | No |
Why companies use them
- Limited liability: problems in the subsidiary don’t automatically reach the parent’s balance sheet.
- Local presence: many countries only let a local company hire, invoice in local currency or hold licences.
- Full control: no partner to negotiate with over strategy, dividends or IP.
- Clean exits: the subsidiary can be sold as a unit.
The trade-offs are setup cost, local compliance (accounts, audits, tax filings) and the need to fund the subsidiary’s capital.
The China version: the WFOE
In mainland China, a foreign company’s wholly owned subsidiary is a wholly foreign-owned enterprise (WFOE). It is a limited liability company under the PRC Company Law, owned entirely by the foreign parent (or by a foreign individual). It can invoice customers in RMB, issue fapiao, employ staff and hold IP.
Two China-specific points matter most:
- Registered capital must be paid in within five years under the 2024 Company Law, so set it at a level you can fund. See what the minimum registered capital is.
- Sector limits: activities on the Foreign Investment Negative List can’t be done through a WFOE. See can a foreigner own 100% of a company in China?
Many groups place a Hong Kong holding company between the parent and the WFOE, which can reduce withholding tax on dividends and makes a later sale simpler.
Next step
If you’re weighing a WFOE against a joint venture or representative office, our WFOE registration page explains the process, documents and timeline.