Franchising is a hybrid business model that combines the features of a corporation with those of a sole proprietorship. Franchising makes it possible for the owner of a business to grow it by selling the rights to use their brand or business model rather than building new units on their own. A franchise can be a great option for a beginner entrepreneur who wants to start a business, but not from scratch. Instead, they can follow an existing, successful business blueprint (Joseph, n.d.).
This type of business is one where two or more parties, typically businesses, pool their expertise and resources to accomplish a common goal. In such an arrangement, the profits, losses, and costs of the resulting enterprise are jointly shared. Businesses form joint ventures for various reasons: development of new products, business expansion, or venturing into new markets, especially overseas. A joint venture offers access to established markets, more resources, greater capacity and distribution channels, and increased technical knowledge (Info Entrepreneurs, n.d.).
An Equity Partnership is a joint venture between individuals who pool their capital, skills, and resources to achieve greater revenue and growth from their investments. The joint venture could be set up in various ways (ANZ, n.d.). One of the risks of an equity partnership is that your partner has the right to question business decisions even though they may own a lower percentage of the business. The benefit to all equity partners who have full voting rights on important business decisions is that it can result in greater accountability and better decisions being made. Other benefits include accelerated company growth and sustainability (Curley, 2011).
When one company buys another, the acquired company becomes a subsidiary of the purchasing company. A subsidiary company (also known as the child company) is owned and controlled by either a parent company or a holding company. There is an operational difference between a parent company and a holding company. Holding companies do not have any operations of their own; they own a controlling share of stock or own the assets of the subsidiary company. Parent companies run their own operations and own other subsidiary companies. A subsidiary company operates as a normal company, while the parent company may choose to provide oversight only or become hands-on in the operations of the subsidiary company (Murray, 2018).
A foreign subsidiary is a company, whether partially or wholly-owned, that is part of a larger corporation with headquarters in a different country (“Foreign Subsidiary Company”, n.d.). A foreign subsidiary company is incorporated and follows the laws of the country in which it is located. There are some main advantages to foreign subsidiaries, a couple of them being, the parent or holding company has an international presence and the foreign subsidiary, being a separate legal entity, has limited liability (Howard, 2017).
It is worth noting that host-country nationals and expatriates (also known as parent-nationals) are typically subject to the employment laws of the country in which they work. For example, an Indian manufacturer who employs an Indian citizen at a plant located in the United States is still subject to U.S. EEO laws. Companies are also typically required to pay payroll taxes to the country where the work is being performed (U.S. Equal Employment Opportunity Commission [EEOC], 2003).
Before choosing any form of business entity, it is necessary to understand how it is structured, and whether it will bring more benefits than losses to your business.