Senior Professional in Human Resources (SPHR) Certification Practice Exam

A local gym selling rights to another company to use their brand is an example of what type of business structure?

1. A. Subsidiary

2. B. Merger

3. C. Joint venture

4. D. Franchising

The correct answer is: D. Franchising

When a local gym sells the rights to another company to use its brand, this is a clear example of franchising. In a franchise relationship, the franchisor (the gym, in this case) provides the franchisee (the other company) with the right to operate under its brand name and often provides support in terms of marketing, training, and operational guidelines. This allows the franchisee to leverage the established reputation and business model of the franchisor while operating as an independent business. In the context of franchising, the gym retains ownership of the brand and may receive fees or royalties from the franchisee for the use of its name and business practices. This structure is beneficial for the franchisee as it reduces the risk of starting a new business by using a proven concept, while the franchisor can expand its brand with less capital investment. Other business structures, such as subsidiaries, mergers, and joint ventures, involve different legal and financial relationships between the entities involved. A subsidiary means that one company owns a controlling interest in another, while a merger implies that two companies have combined to form a single entity. A joint venture involves two or more parties creating a separate business entity to pursue a specific project, sharing both the risks and rewards. Each of these