When considering the legal entity of your new business, you have several options to choose from. Of all the entities available, franchises and corporations are two of the most popular choices. But what is the difference between a franchise and corporation? Both offer their own advantages when it comes to establishing and running a business, but there are also significant differences that should be taken into consideration before deciding which one is best for you. In this blog post, we’ll discuss both in detail so that you can make an informed decision about how to legally structure your venture.
What is a Franchise?
A franchise is a business model that allows entrepreneurs to start and manage their own businesses using the existing success of an existing business. The franchisor – the original business owner – owns the rights to the business and supplies it to another person or company, while they provide guidance as well as have a say on how operations are carried out.
Franchisee’s benefit from having mostly eliminated the risk startups face while avoiding competitive markets. Franchise buyers usually have access to quality branding, proprietary technology, established marketing strategies, and many other advantages. Investing in a franchise can be a great way to become your own boss with limited resources and minimal research efforts.
What is Corporation?
A corporation is a form of business organization that exists as a separate legal entity from the people or shareholders who own it. Corporation offers many benefits to its owners, including limited liability in certain jurisdictions, perpetual life, and self-management. Corporation also allows for easy transferability of ownership and permits raising capital from multiple sources.
Besides providing legal protection to its owners, Corporation typically involves much more complexity than other business entities and requires compliance with numerous regulations. Many Corporations are publicly traded, which means their shares can be bought and sold on public stock exchanges. Corporations provide an efficient way for businesses to operate around the world and are used by companies ranging in size from small start-ups to giant multinationals.
Difference between Franchise and Corporation
Franchise and corporation dwellings typically vary in many ways.
- Franchise business models often involve a franchisor and a franchisee, with the former being a large company such as McDonalds, granting the rights to distribute their products or services to individuals.
- On the other hand, corporations are created by numerous stakeholders such as shareholders, directors, and officers of a business entity distributing ownership interests within that business.
- Franchisees in franchises do not have any equity stake beyond contractual limitations, while shareholders of corporations are able to acquire stock parts of various businesses through their contributions.
- Franchise agreements prohibit the franchisee from pursuing legal action against the franchisor for issues like breach of contracts or non-disclosure of information about the brand name and associated products; however, this is not the case in corporations where this kind of litigation is possible.
Finally, franchisees may risk losing their franchising contracts whereas corporate entities are more stabile even under adverse market conditions. Franchise and corporation dwellings can be vastly different when looking at areas such as equity distribution, control issues, legal rights, and stabilities; all these areas should be considered before investing into either model.
Conclusion
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity and recognized as such in law. A corporation has many different rights, powers, and privileges under the law. Franchises, on the other hand, are businesses that use another business’s trademarked products or services. The franchisor grants the franchisee permission to sell those products or services using its name and business model. Like any relationship, there are advantages and disadvantages to both corporations and franchises. It’s important to do your research so you can decide which structure is right for your new business venture. Thanks for reading! We hope this article helped clear up some common misconceptions about these two popular business structures.
