A joint venture and a wholly owned subsidiary are both types of businesses that are controlled by other businesses. Beyond that similarity, they are quite distinct. The two business forms differ based on their ownership structure, risks, benefits and uses. Managers and business owners considering starting a new venture may consider these two options.
The most significant difference between a joint venture and a wholly owned subsidiary is the ownership structure. A joint venture is a firm that is set up, owned and operated by two or more companies. A joint venture may be an equal partnership, or one of the partners may have a greater share of the business. A wholly owned subsidiary is a owned by a single company that maintains control over it.
Wholly owned subsidiaries tend to be riskier than a joint venture. In a joint venture, the risk is spread out between more than one company. If the business fails, then the losses are divided between the companies. In the case of a wholly owned subsidiary, the parent firm absorbs any losses by itself. A joint venture also lessens risk by generally providing access to more resources, including personnel and capital.
Just as joint ventures and wholly owned subsidiaries differ in their risks, they also differ in their potential benefits. The benefits tend to be greater in a wholly owned subsidiary, simply because the profits do not need to be shared.
Wholly owned subsidiaries are generally used in a situation where the business is considered a low risk. Typically, it will be used if the firm possesses all the required skills and has good knowledge of the market. A joint venture, on the other hand, will typically be used where the firm needs access to skills, knowledge or other resources and where the risk of failure is significant.