Franchise vs. Subsidiary — What's the Difference?
By Tayyaba Rehman & Urooj Arif — Updated on May 10, 2024
A franchise is a business model where independent owners operate under a brand's trademark, whereas a subsidiary is a company fully or partly owned and controlled by another.
Difference Between Franchise and Subsidiary
Table of Contents
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Key Differences
A franchise operates with a legal and commercial relationship between the owner of a trademark and a person who seeks to use that identification in a business. Whereas, a subsidiary is a separate legal entity, although it is owned by another company, which is often referred to as the parent company.
The franchisee pays a fee and often a percentage of the revenue to the franchisor for the right to operate under the franchisor's brand and system. On the other hand, a subsidiary is controlled by its parent company through ownership of more than 50% of its voting stock.
Franchises are prevalent in various sectors like fast food, retail, and services, providing standardized products and services. In contrast, subsidiaries can operate in any industry and may serve as a way for the parent company to enter new markets or expand its operations.
The operational autonomy of a franchise can vary, but they generally adhere strictly to the franchisor's guidelines. Meanwhile, subsidiaries might operate with greater independence, depending on the parent company's management style.
Franchises contribute to the franchisor's earnings through ongoing royalties and initial fees. Conversely, the financial success of a subsidiary directly affects the parent company's bottom line, as it includes its subsidiary's financials in its consolidated results.
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Comparison Chart
Ownership
Independent owner operates under brand's trademark
Owned fully or partly by another company
Control
Operates under franchisor’s guidelines
Parent company controls operations
Industry Presence
Common in fast food, retail, services
Operates across various industries
Financial Flow
Pays fees and royalties to franchisor
Contributes directly to parent company’s earnings
Market Entry
Eases market entry for small entrepreneurs
Used by companies to expand or enter new markets
Compare with Definitions
Franchise
A franchise is a permission granted to an individual or group to market a company's goods or services within a certain territory.
The fast food outlet near the mall operates as a franchise.
Subsidiary
A subsidiary is a company controlled by another, which is known as the parent company.
The technology firm became a subsidiary of a larger multinational corporation.
Franchise
It involves paying an initial fee and ongoing royalties to the franchisor.
He considered opening a franchise, but the royalties were quite high.
Subsidiary
A subsidiary maintains its own legal identity separate from the parent.
The subsidiary was sued, but the parent company was not held liable.
Franchise
Franchises often receive training and support from the franchisor.
The franchise owners attended a training seminar organized by the corporate office.
Subsidiary
Financial results of a subsidiary are included in the parent’s consolidated financial statements.
All financial results of the subsidiary are reported at the year-end in the parent company’s annual report.
Franchise
This business model relies on brand recognition.
Many entrepreneurs opt for franchises due to the established brand recognition.
Subsidiary
The level of control exercised by the parent can vary significantly.
The parent company allows its subsidiary considerable operational freedom.
Franchise
A franchise operates independently but must adhere to certain rules set by the franchisor.
Although she owned the store, she had to follow the franchisor’s strict operational guidelines.
Subsidiary
It may operate in the same industry as the parent company or in a different one.
The subsidiary operates in renewable energy, unlike its parent company in oil and gas.
Franchise
A privilege or right granted by law, especially the right to vote in the election of public officials.
Subsidiary
A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two subsidiaries that belong to the same parent company are called sister companies.
Franchise
A special privilege given by government to a corporation or an individual to engage in a particular activity using public facilities, especially to provide a public service such as transportation or communications.
Subsidiary
Serving to assist or supplement; auxiliary.
Franchise
The establishment of a corporation, including the granting of certain privileges such as exemption from individual liability for the acts of the corporation.
Subsidiary
Secondary in importance; subordinate.
Franchise
Authorization granted to someone to sell or distribute a company's goods or services in a certain area.
Subsidiary
Of, relating to, or of the nature of a subsidy.
Franchise
A business or group of businesses established or operated under such authorization.
Subsidiary
One that is subsidiary to another.
Franchise
A brand name under which a series of products is released.
Subsidiary
A subsidiary company.
Franchise
The territory or limits within which immunity, a privilege, or a right may be exercised.
Subsidiary
(Music) A theme subordinate to a main theme or subject.
Franchise
A professional sports team.
Subsidiary
Auxiliary or supplemental.
Franchise
To grant a franchise to.
Subsidiary
Secondary or subordinate.
A subsidiary stream
Franchise
The right to vote at a public election or referendum; see: suffrage, suffragette.
Subsidiary
Of or relating to a subsidy.
Subsidiary payments to an ally
Franchise
A right or privilege officially granted to a person, a group of people, or a company by a government.
Subsidiary
A company owned by a parent company or a holding company, also called daughter company or sister company.
Franchise
An acknowledgment of a corporation's existence and ownership.
Subsidiary
(music) A subordinate theme.
Franchise
The authorization granted by a company to sell or distribute its goods or services in a certain area.
McDonald’s has exported its franchise.
Subsidiary
One who aids or supplies; an assistant.
Franchise
A business operating under such authorization, a franchisee.
Subsidiary
Furnishing aid; assisting; auxiliary; helping; tributary; especially, aiding in an inferior position or capacity; as, a subsidiary stream.
Chief ruler and principal head everywhere, not suffragant and subsidiary.
They constituted a useful subsidiary testimony of another state of existence.
Franchise
A legal exemption from jurisdiction.
Subsidiary
Of or pertaining to a subsidy; constituting a subsidy; being a part of, or of the nature of, a subsidy; as, subsidiary payments to an ally.
George the Second relied on his subsidiary treaties.
Franchise
The membership of a corporation or state; citizenship.
Subsidiary
One who, or that which, contributes aid or additional supplies; an assistant; an auxiliary.
Franchise
The district or jurisdiction to which a particular privilege extends; the limits of an immunity; hence, an asylum or sanctuary.
Subsidiary
An assistant subject to the authority or control of another
Franchise
(sports) The collection of organizations in the history of a sports team; the tradition of a sports team as an entity, extending beyond the contemporary organization.
The Whalers' home city of Hartford was one of many for the franchise.
Subsidiary
A company that is completely controlled by another company
Franchise
The positive influence on the buying behavior of customers exerted by the reputation of a company or a brand.
Subsidiary
Relating to something that is added but is not essential;
An ancillary pump
An adjuvant discipline to forms of mysticism
The mind and emotions are auxilliary to each other
Franchise
The loose collection of fictional works pertaining to a particular fictional universe, including literary, film, or television series from various sources, generally when all authorized by a copyright holder or similar authority.
The Star Wars franchise
Subsidiary
Functioning in a subsidiary or supporting capacity;
The main library and its auxiliary branches
Franchise
Exemption from constraint or oppression; freedom; liberty.
Franchise
(obsolete) Magnanimity; generosity; liberality; frankness; nobility.
Franchise
(transitive) To confer certain powers on; grant a franchise to; authorize.
Franchise
To set free; invest with a franchise or privilege; enfranchise.
Franchise
Exemption from constraint or oppression; freedom; liberty.
Franchise
A particular privilege conferred by grant from a sovereign or a government, and vested in individuals; an immunity or exemption from ordinary jurisdiction; a constitutional or statutory right or privilege, esp. the right to vote.
Election by universal suffrage, as modified by the Constitution, is the one crowning franchise of the American people.
Franchise
The district or jurisdiction to which a particular privilege extends; the limits of an immunity; hence, an asylum or sanctuary.
Churches and mobasteries in Spain are franchises for criminals.
Franchise
Magnanimity; generosity; liberality; frankness; nobility.
Franchise
To make free; to enfranchise; to give liberty to.
Franchise
An authorization to sell a company's goods or services in a particular place
Franchise
A business established or operated under an authorization to sell or distribute a company's goods or services in a particular area
Franchise
A statutory right or privilege granted to a person or group by a government (especially the rights of citizenship and the right to vote)
Franchise
Grant a franchise to
Common Curiosities
What is a subsidiary?
A subsidiary is a company that is completely or majority-owned and controlled by another company, termed the parent company.
What is a franchise?
A franchise is a business system in which private entrepreneurs purchase the rights to open and run a location of a larger company.
How do financial obligations differ between a franchise and a subsidiary?
A franchisee pays ongoing royalties and a fee to the franchisor, whereas a subsidiary’s financials are incorporated into the parent company’s overall financial statements.
How does a franchise differ from a subsidiary in terms of control?
In a franchise, the franchisee maintains operational control within the franchisor's guidelines, whereas a subsidiary is controlled by its parent company.
What are the benefits of opening a franchise?
Benefits include brand recognition, support from the franchisor, and a proven business model.
How does market entry differ between a franchise and a subsidiary?
Franchises allow for easier small business market entry using a known brand, whereas subsidiaries help a parent company expand into new markets.
Can a subsidiary operate internationally?
Yes, subsidiaries are often established by companies looking to expand operations in international markets.
How does a parent company profit from owning subsidiaries?
The parent company profits through the overall enhanced performance and profitability of its subsidiaries.
What type of support does a franchise receive from the franchisor?
Franchises typically receive branding, training, and operational support from the franchisor.
What legal independence does a subsidiary have?
A subsidiary is legally independent of the parent company, though it is controlled by it.
How do companies choose between starting a franchise and a subsidiary?
The choice depends on the level of investment, desired control, and strategic goals of the company.
What are the risks associated with franchising?
Risks include strict adherence to franchisor rules and potential conflicts with franchisor policies.
What are the risks associated with owning a subsidiary?
Risks include financial exposure if the subsidiary performs poorly and legal liabilities in some cases.
What makes a subsidiary different from a division?
A subsidiary is a separate legal entity, whereas a division is merely a part of a company without a separate legal identity.
Can a franchise be converted into a subsidiary?
Generally, franchises remain separate from the franchisor as independent entities, whereas subsidiaries are integral parts of the parent company.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
Co-written by
Urooj ArifUrooj is a skilled content writer at Ask Difference, known for her exceptional ability to simplify complex topics into engaging and informative content. With a passion for research and a flair for clear, concise writing, she consistently delivers articles that resonate with our diverse audience.
