We explain that what is the difference between franchise and corporation with table. Franchising is the process of licensing proprietary information, such as trademark, trade name, logo, etc., to a third party. This is a preferred method of establishing businesses and entering highly competitive markets. It also enables the company to expand and enter new markets, establishing a larger customer base.
A corporation is a company owned by shareholders. It has a separate legal entity, that is, it is considered separate from its owners. Simply put, it is considered a legal person in the eyes of the law.
When a franchise is a method of expansion, a corporation is an entity whose expansion is facilitated by the franchise process.
the difference between franchising and Corporation is a franchise owned by franchisees, a third party. On the other hand, a corporation is owned by shareholders. The scope of responsibility and the work model is also different.
Comparison table between franchise and corporation (in tabular form)
Comparison Franchise Corporation Parameters
| Sense | A franchise is the chain of the same company. | A corporation can have a single company or a group of companies. |
| Property | A franchise is owned by individuals. | A corporation is owned by shareholders. |
| Control | A franchise is controlled by the franchisor | A corporation is controlled by the Board of Directors (BoD) |
| Responsibility | In a franchise, a franchisor is responsible for the actions of the franchisee. | Since corporations are owned by shareholders, they have limited liability. |
| Income | A franchisor receives royalty payments for granting rights to the use of trademarks, etc. | A corporation depends on the sale and purchase of stocks and investments by investors. |
What is the franchise?
A franchise is created when a brand / company wants to expand its operation. This business model was born thanks to Isaac Singer in the mid-19th century. He invented the sewing machine and then used the franchise method to distribute it.
In the franchise process, a franchisor (the owner) grants the franchisee the rights / license to use proprietary information such as trademark, trade name, logo, etc. In return, the franchisor asks for a fee known as royalties.
This helps the franchisor to increase its reach geographically with minimal costs and also to strengthen the brand by increasing its availability around the world. It is a preferred method for people who want to start a business and enter highly competitive industries such as eating joint competition.
Franchises are regulated by the Federal Trade Commission (FTC) regulation that was established in 1979. Then, states have different regulatory authorities in alignment with global regulation to monitor franchise activities.
The franchise does not mean that the property rights of the franchisor have been transferred to the franchisee. It is more like a lease or a contract that needs to be renewed. If the terms and conditions of the contract are violated, the franchisee is subject to the law.
Franchising offers the advantage of having a ready-to-use business model that can be used out of the box and quick revenue generation because the brand is established. But there are also some downsides. For the franchisee, paying regular royalties can be a burden and the person may want to start their own business.
What is the Corporation?
A corporation is a legally established body that has been created by law. Like any other living person, you have certain rights, such as the right to enter into contracts and borrow money.
It is owned by the shareholders and is regulated by the Board of Directors (BoD). You are also required to pay taxes and have the right to own assets. Corporations can be formed for profit or for social purposes.
A corporation is incorporated through legal procedures, and the rules for the corporation are different for the state in which the corporation is registered. The shareholders get one vote to elect the management of the corporation.
Sometimes a corporation can be dissolved; This process is known as liquidation. In this process, all external liabilities are paid first and then internal liabilities are canceled. Shareholders get the excess value.
There are many advantages to owning a corporation. All shareholders of the corporation have limited liability. This means that they are responsible to the extent of their participation in the company’s share capital. They also receive payments in the form of dividends and have the right to sell their shares or buy more shares. A corporation also has a perpetual life since it is a person created by law; it can only be dissolved by law. But then, corporations have excessive tax filing activities.
Main differences between franchise and corporation
- A franchisee is a proprietary franchisee who has obtained rights to the use of proprietary information from the Franchisor. In contrast, a corporation is owned by shareholders.
- A franchise is regulated by contract rules and Federal Trade Commission (FTC) regulations. On the other hand, a corporation is regulated by the Board of Directors (BoD).
- A franchisor receives payment on behalf of the franchisee’s royalty. On the other hand, shareholders receive dividends and corporations receive investments.
- The franchisor is responsible for the activities of the franchisee and can also sue the franchisee for violating contractual agreements. In contrast, the shareholders of a corporation have limited liability.
- A franchise is a chain of outlets of the same company present in different locations for expansion, while a corporation is a legal entity.
Final Thought
Therefore, franchises and corporations are two different terms. When a corporation includes people as shareholders and the Board of Directors (BoD), a franchise includes people as Franchisor and franchisee.
In franchising, the license to use the proprietary information of the company, such as the trademark, is granted to the franchisee under some terms and conditions. Still, such a license has no place in a corporation. The second is only a legal person formed by the processes of law and has the rights and responsibility as a human being. The income of a franchisor is the royalties paid by the franchisee. Rather, the shareholders of a corporation receive dividends and the corporation is run by investments and / or profits.
