The takeover highlights China’s arrival as a major force in the global automobile industry and ends nearly two years of talks over Volvo.
Geely said it had secured all the necessary financing to complete the deal and “significant working capital” to fund Volvo’s business.
Ford has been looking to offload Volvo, along with other brands, since 2008 when it ran into financial difficulties along with much of the car industry.
Geely, which clinched Volvo at a price tag well below the $6.5bn (£4.4bn) Ford paid for it in 1999, plans to keep the brand and operations in Sweden.
It is hoped that the sale will allow Ford, which has already sold its Jaguar and Land Rover to India's Tata Motors, to pay off debts and to focus on its core Ford brand.
Analysts said the move would be good for Volvo, giving the brand access to the fast-growing Chinese car market.
Geely chairman Li Shufu said the deal “represents a milestone in the history of Geely”.
He is already planning a factory in Beijing which will make 300,000 Volvo branded cars, or as many Volvos for China as are now made abroad for foreigners.
Geely, the parent company of Geely Automobile Holdings, was named by Ford as the preferred bidder for the loss-making unit in October 2009.
China raced past the US to become the world's top car market last year, with a record 13.6 million units sold.
ROTHSCHILD managing director Meyrick Cox was lead adviser to Geeley on the deal. He told City A.M. he had approached Geeley as early as 2007 to suggest Ford’s Volvo division would be coming up for sale.
The US giant initially knocked back Geeley’s advances but later entered into negotiations with Rothschild.
Cox said the deal was unusually complex as Geeley had no internal M&A team in place. He said: “It was incredibly involved, the work load was terrific, there were massive issues to work through, like the problem of how to divide up the intellectual property. We needed to go into a huge amount of detail over these things.
“There is still a lot of work to be done on the deal, we’ll have our hands full for a while on this one.”
Cox has previously worked for Goldman Sachs and Schroders. He has worked on high-profile deals including advising UK drinks group Allied Domecq on its £560m purchase of Malibu, and representing the US food group Sara Lee.