The deal, which both Geely and Ford hope to finalise by Q3 this year, ends a process that began with Geely being named the preferred bidder for the Swedish brand back in October of last year.
The sale of Volvo will be the biggest acquisition of a foreign auto asset yet for a Chinese firm, and represents the last in Ford's Premier Automotive Group, which had also included Aston Martin, Jaguar and Land Rover.
Ford, who will continue supply powertrains, stamping and other selected components to Volvo after the sale, purchased Volvo back in 1999 for USD$6.5 billion (AUD$7.13 billion). The sale will free up cash for Ford allowing it to better focus on its core brand.
Geely chairman, Mr Li Shufu, has previously stated that Volvo will remain a separate company with its own, Swedish-based management team. European production will also remain with Geely saying it was important Volvo was close to its key supply centres.
"I have a deep belief that the manufacturing footprint in Gothenburg and Belgium will be preserved in the longer term," said Mr Shufu."We want to stabilise and enhance the traditional markets in Europe and North America, and at the same time develop the other Volvo business in emerging markets, including China."
It is reported that Geely is also planning a Volvo manufacturing plant in Beijing that will produce up to 300,000 units a year for domestic consumption.
The state is also behind Geely's new purchase with Beijing saying it plans to replace state officials' cars with Geely-built Volvos.
Geely said it wants to increase global sales of Volvo cars to 2 million units by 2015. Last year, Volvo produced approximately 330,000 cars. Geely, founded in 1986, is based in Hangzhou, China.