When successful companies grow, it often happens that they face the question of whether or not they want to continue to expand by their own means or by enabling investors and businesses to buy franchises.
When it comes to corporate retailing and franchising, as with most business practices, there are certain advantages and disadvantages of keeping corporate stores owned vs. selling franchises to investors. In this article, we will explain the difference between corporate and franchise.
Franchise vs Corporation
Once you open a franchise, it means another existing company has granted you permission to use their name, logo, products, and more. Franchisees typically pay fees to the original company for the right to build on the established entity. If you plan to open one, you should create a new company using any type of business structure, including a corporation, partnership, or limited liability company ( LLC).
A corporation is a business that is owned by shareholders. This has a separate legal entity, i.e. it is deemed to be independent of its owners. In simple terms, in the eyes of the law, it’s considered a legal person.
The difference between Franchise and Corporation is that the franchise is owned by a franchisee, a third party. A corporation, on the other hand, is owned by the shareholders. The nature of the liability and the working model is also different.
What is a Corporation?
A corporation is a business entity that is owned by shareholders and has a board of directors that manages the operations of the corporate. As a person who owns a corporation, you have complete power and authority over your business, and any adjustments you make do not include any sort of negotiations with franchisees compared to franchises.
It ensures that you have the free will to change the goods and services you sell without the intervention of franchisees.
However, most businesses have board members who deal with different departments in the company, so that the corporation can run smoothly. The shareholders and investors in your business may give the organization monetary support, but the company’s liability is limited as you represent a corporation.
The corporate legal records and structure are distinct from a single franchise as it operates as a large company.
What is a Franchise?
The franchise model is one of many similar business models that occur by franchising. The franchise is a tool used by the franchisor to expand the company through the distribution of products and services through the license agreement.
Owning a franchise helps the franchisor because they benefit from a number of advantages, such as business growth that they would not have been able to achieve because all the funding of the franchise is provided by the franchisors. The franchise also continues to rise in popularity, making the name of the business more significant because of the many branches.
As a franchisor, you are supposed to manage all the legal formalities of your company and have a structure that can be applied to a successful brand. Convincing franchisees with the idea of a business is up to the franchisor to ensure that individuals get the most out of their investments.
By being the decision-makers and the creator of the concept, franchisees will be interested in any improvements you plan to make to the brand to ensure that they still benefit from the franchise. The form of a franchise is a diverse meaning that can appear in different forms. Either as a corporation, partnership, or other forms, as long as the brand keeps its trademarks.
Advantages of Franchise
- When compared to a new business, it is frequently easier to secure a loan to buy a franchise because banks understand the financial risks of franchises and appreciate their proven model.
- Because of their proven business model, franchise frequently have a lesser risk of failure.
- Because most national franchises are well-established and spend in national advertising efforts that make it simpler for new owners to compete, franchise owners are not responsible for all of the business advertising.
- If you do well, you may be able to expand your franchise. Your local area or beyond may be included in the expansion.
Disadvantages of Franchise
- Paying ongoing fees and royalties can be frustrating, particularly if you believe you are primarily responsible for your success.
- If professional freedom was one of the motivating factors for you to become an entrepreneur, you might not enjoy the feeling of working for others.
- Even if your business fails, you’ll most likely have to wait until your legal agreement with the parent company ends before you can move on.
- As a franchise owner, you may have to work long hours, especially if you have difficulty hiring reliable employees.
- Depending on the franchise, you may have a high rate of employee turnover.
What is the difference between a franchise and a multinational corporation?
A franchise is owned by individuals. However, a corporation is owned by shareholders.
A franchise is controlled by the Franchisor. However, A Corporation is controlled by the Board of Directors.
In a franchise, a Franchisor is liable for the actions of the franchisee. However, corporations are owned by shareholders so they have limited liability.
4.Mode of operation
Franchisees are expected to pay a royalty to the franchisor as they use the brand’s name of success while corporations are engaged in the distribution and acquisition of shares and stocks.
A franchisor gets royalty payments for giving rights to the usage of trademarks, etc. However, A corporation is dependent on the sale and purchase of shares and investments by investors.
As a result, franchises and corporations are two different. Whereas a corporation includes individuals such as shareholders and the Board of Directors (BoD), a franchise includes individuals such as the Franchisor and franchisee.
In franchising, the franchisee is granted a license to use the company’s proprietary information, such as its trademark, subject to certain terms and conditions. Nonetheless, no such licensing occurs in a corporation.
The latter is simply a legal person formed by the processes of the law, and he has the same rights and responsibilities as a human being. The royalty paid by the franchisee generates revenue for the franchisor. A corporation, on the other hand, pays dividends to its shareholders and is funded by investments and/or profits.