Franchise
Franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchise sells goods or services supplied by the franchisor or that meet the franchisor's quality standards.
Types of Franchises[edit | edit source]
There are two types of franchises: Product/trade name franchising and business format franchising.
Product/Trade Name Franchising[edit | edit source]
In product/trade name franchising, the franchisor owns the right to the name or trademark and sells that right to a franchisee. This is usually a simple licensing agreement.
Business Format Franchising[edit | edit source]
In business format franchising, the franchisor and franchisee have an ongoing relationship. This type of franchising is the most common form of franchising.
Advantages of Franchising[edit | edit source]
Franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch.
Disadvantages of Franchising[edit | edit source]
Franchisees often must pay ongoing franchise fees and may have less freedom in business decisions than independent entrepreneurs.
Legal Considerations[edit | edit source]
Franchising is regulated by laws and regulations at the state and federal level. Franchisees are protected by the Franchise Rule enforced by the Federal Trade Commission (FTC).
See Also[edit | edit source]
- Franchise agreement
- Franchise disclosure document
- Franchise fee
- Franchise Rule
- Federal Trade Commission
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Contributors: Prab R. Tumpati, MD