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

There are two types of franchises: Product/trade name franchising and business format franchising.

Product/Trade Name Franchising

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

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

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

Franchisees often must pay ongoing franchise fees and may have less freedom in business decisions than independent entrepreneurs.

Legal Considerations

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

• Franchise agreement
• Franchise disclosure document
• Franchise fee
• Franchise Rule
• Federal Trade Commission

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