Senior Professional in Human Resources (SPHR) Certification Practice Exam

What type of business entity is Technocorp Inc., which is 51 percent owned by a parent company in Puerto Rico?

1. Multinational corporation

2. Franchise

3. Joint venture

4. Foreign subsidiary

The correct answer is: Foreign subsidiary

Technocorp Inc. is classified as a foreign subsidiary because it is a company that is incorporated in one country (in this case, likely the United States or another location outside of Puerto Rico) but is controlled by a parent company based in another country (Puerto Rico). A foreign subsidiary typically operates under the laws and regulations of the country where it is established while being significantly influenced or directed by its parent organization. Ownership percentage plays a critical role in this classification; since the parent company owns 51 percent of Technocorp Inc., it demonstrates a controlling interest, which solidifies its status as a subsidiary rather than a standalone entity or a different type of business structure. The other options do not accurately describe Technocorp Inc. A multinational corporation would typically operate in multiple countries without being closely aligned with one parent company. A franchise would indicate a licensing agreement where the franchisee operates under the brand name and business model of the franchisor, rather than being owned. A joint venture implies shared ownership and operations by two or more parties, which is not the case here, given the majority ownership by the parent company.