When Canadians explore business ownership or learn more about how large companies are structured, the terms “franchise” and “subsidiary” often come up. At first glance, the two may seem similar because both involve multiple locations operating under the same brand. However, franchises and subsidiaries are very different in how they are owned, managed, and operated. Understanding these differences is important for entrepreneurs, investors, and anyone curious about how major businesses expand. This article explains what sets franchises and subsidiaries apart in clear, simple terms.
What a Franchise Is
A franchise is a business model where an independent owner, known as a franchisee, buys the right to operate under an established brand. The franchisee invests their own money, runs the day-to-day operations, and follows the rules set by the franchisor. The franchisor provides the brand name, training, operational systems, and ongoing support. Although the franchisee must meet brand standards, they still operate as an independent business owner. This means they take on the financial risk, make staffing decisions, and handle local operations. Franchising is common in Canada because it gives people the chance to own a business using a proven model.
What a Subsidiary Is
A subsidiary, on the other hand, is a company that is controlled or owned by a larger parent corporation. Unlike a franchise, a subsidiary does not have an independent owner. Instead, the parent company owns a controlling share or owns the subsidiary outright. This means the parent company makes major decisions, handles finances, and oversees management. Subsidiaries are often used when a company wants full control over another business or brand. They may operate under a separate name or under the parent company’s brand, but the ownership remains centralized.
Ownership and Control
The most important difference between a franchise and a subsidiary is ownership. In a franchise, the location is owned by an independent franchisee. In a subsidiary, the business is owned by a corporation. This affects how decisions are made. A franchisee has the freedom to manage many parts of the business but must follow the franchisor’s system. A subsidiary is controlled directly by the parent company, which sets policies, financial strategies, and operational procedures. Franchisees take on personal financial risk. Subsidiaries place the financial responsibility on the parent corporation.
How They Expand
Franchising and subsidiaries also differ in how they help businesses grow. Franchising allows a company to expand quickly because franchisees cover the cost of opening new locations. This reduces financial strain on the brand while still increasing its presence. Subsidiaries require the parent company to invest its own capital when expanding. While this allows for greater control, it also comes with higher financial risk. Many global companies use a mix of both systems depending on their goals. In Canada, franchising tends to be more common among consumer-facing businesses such as restaurants, retail, and home services.
Profit and Responsibility
In a franchised business, profits from the location go to the franchisee, while the franchisor earns revenue through royalties and fees. In a subsidiary, profits flow directly to the parent corporation. This difference impacts financial reporting, accountability, and long-term strategy. Franchisees must manage their own profitability and deal with local challenges. Subsidiaries rely on corporate direction and resources, which can provide more stability but less local independence.
Why the Distinction Matters
Understanding the difference between franchises and subsidiaries helps Canadians make smarter decisions about business ownership, investment, and employment. Potential franchisees need to know that they are buying into a system but still running their own business. Employees may notice differences in workplace structure, training, and leadership depending on whether they work for a franchise or a subsidiary. For consumers, both models can offer consistent products and services, but the behind-the-scenes structure is very different.
Conclusion
A franchise is not the same as a subsidiary. A franchise is independently owned and operated under a brand’s system, while a subsidiary is owned and controlled by a parent corporation. Both models allow companies to expand, but they do so in different ways and with different levels of control and responsibility. For Canadians exploring entrepreneurship or learning how large businesses grow, understanding these differences provides valuable insight into how companies operate across the country and around the world.
