What is the meaning / definition of Franchise in the industry?

The franchise is the legal contract that binds a franchisor and franchisee in business.

The franchise is a contract that generally consists of terms and clauses that specify as to how a business (franchisor) agrees to provide another party (franchisee) with the ’s brand, services, operation methods and any other support to operate a similar business in exchange for a initial payment as well as a percentage of the generated income in form of a monthly re-occurring fee (royalty fee).

A franchise is normally negotiable, and can range in durations of a year to even undetermined amount of years. Most common example of a franchisor is McDonalds, as the world’s largest franchise network. In the industry franchises are very common as they allow independent to benefit from the marketing power of greater brands or companies. Thereby allowing them a greater reach far beyond anything their own resources could buy. Additionally to this the franchisee benefits from advice, SOPs, simple business financing, support and security and overall less likely to fail. On the other hand, being a franchisor means loosing control over many aspects of your own company.

See also:

  • Franchise
  • Franchisor
  • Franchisee
  • Franchise fee
  • Franchise Disclosure Document


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