Human Resources Certification Institute (HRCI) Practice Exam

Technocorp Inc., with 51 percent of its ownership with a parent company in Puerto Rico, is most likely what type of business entity?

1. Multinational corporation

2. Franchise

3. Joint venture

4. Foreign subsidiary

The correct answer is: Foreign subsidiary

A company like Technocorp Inc., which has a significant ownership stake (51 percent) by a parent company based in another country (in this case, Puerto Rico), is categorized as a foreign subsidiary. This classification comes from the fact that a foreign subsidiary is a company that is controlled by a parent company located in a different country. In this scenario, since the parent company holds a majority (51 percent) of the ownership, it has control over the operations and strategic decisions of Technocorp Inc., designating it as a subsidiary of that parent company. This ownership structure highlights a key characteristic of foreign subsidiaries: they are effectively part of a global corporate structure, yet operate independently within their local market environments. Being a foreign subsidiary often allows for easier navigation through local regulations, while still being influenced and aligned with the broader corporate goals of the parent company. The other types of business entities include multinational corporations, which typically refer to companies that operate in multiple countries and may not necessarily have a controlling interest from one company, and franchises, which represent a licensing agreement allowing one party to operate a business using the branding and business model of another. Joint ventures involve two or more parties creating a separate business entity, generally with shared ownership and control, which does