An agreement between the two companies was first announced in December. The deal represents a loss for Ford, having bought Volvo in 1999 for $6.5bn (£4.3bn).
Ford hopes that the sale will help it pay off its debts and focus on its core brands, following a dire period for the global car industry.
Pending regulatory approvals, the two companies expect the transaction to be completed in the third quarter of this year, when customary purchase price adjustments relating to pension deficits, debt, cash and working capital will be finalised.
Geely intends to preserve Volvo Cars’ existing manufacturing facilities in Sweden and Belgium, while exploring opportunities to manufacture Volvo vehicles in new production facilities to be built in China for the local market.
Loss-making Volvo has been on the market since 2008, when Ford put it and several other brands up for sale. Jaguar and Land Rover in the UK have already been sold to India’s Tata Motors.
Li Shufu, Chairman of Zhejiang Geely Holding Group, says China will become “Volvo’s second home market”.
“This transaction will ensure Volvo’s continued leadership in the premium segment, where it enjoys a global reputation for safety and environmental-friendly technologies. Volvo will be uniquely-positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market.”