What is franchising?
Franchising (from the French for free) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees. Various tangibles and intangibles such as national orinternational advertising, training, and other support services are commonly made available by the entity licensing the ‘chain store’ or franchise outlet (commonly shortened to the one word: franchise), and may indeed be required by the franchisor, which generally requires audited books, and may subject the franchisee or the outlet to periodic and surprise spot checks. Failure of such tests typically involve non-renewal or cancellation of franchise rights.
A continuing relationship in which the franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing, and managing in return for a consideration. Franchising is a form of business by which the owner (franchisor) of a product, service, or method obtains distribution through affiliated dealers (franchisees). The product, method, or service being marketed is usually identified by the franchisor’s brand name, and the holder of the privilege (franchisee) is often given exclusive access to a defined geographical area.
Franchise: Terms and Definitions
ommon Definition – A method of doing business by which a franchise is granted the right to engage in the business of offering, selling or distributing goods and services under a marketing plan or system prescribed in substantial part by a franchisor and which is substantially associated with the franchisor’s trademark, name, logo and advertising. Legal Definition – Franchising is a contract or agreement, express or implied, oral or written, between two or more persons by which: * A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan prescribed in substantial part by a franchisor; * The operation of the franchisee’s business pursuant to that plan or system as substantially associated with the franchisor’s trademark, service mark, tradename, logo type, advertising, or other commercial symbols designating the franchisor or its affiliates; and * The franchisee is required to pay directly or indirectly, a franchise fee. Franchisor – The parent company or operator of a franchise concept or system that grants, for a fee and other considerations, the right to use its name and system of business operations. Franchisee – An independent business person or novice entrepreneur who has been granted by the franchisor the right to duplicate its entire business format at a particular location and for a specified period, under terms and conditions set forth in the contract (franchise agreement). Franchise Agreement – A written contract detailing the mutual responsibilities of franchisors and franchisees. It is usually for a several-year term, and when the term is up, the contract expires and must be renewed. Some state laws require the contract to be renewable at the franchisee’s option. Usually, a franchise agreement may not be sold, transferred or otherwise assigned without the franchisor’s permission. Operations Manual – A written document which clearly explains the franchisor’s standards of operation, and identifies the operational tasks required to establish and operate the franchise business. The operations manual supports and promotes the use of consistent and uniform day-to-day procedures at each franchise unit within the network franchise unit in order to maintain the quality of service and products in every franchise outlet. Franchise Opportunity – A franchise opportunity is a business opportunity that involves the sale of good and services that enable a novice entrepreneur to begin a...
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