WHAT IS A FRANCHISE?
A franchise is
a license to use a trademark in exchange for payment of fees or royalties
and involves some material assistance from or control by the trademark
owner. The typical business format franchise provides the franchisee
with a comprehensive operating system that includes all of the systems,
techniques and practices that the franchisee needs and training in their
implementation. Usually, the franchisor also provides a marketing program
and other support services.
From the franchisee's
perspective, a franchise provides access to brand equity and customer
acceptance that he could not build by himself and quickly teaches him
a detailed and proven system for conducting a business with which the
franchisee may have been previously unfamiliar.
For the franchisor,
selling franchises expands the brand's business faster than it ever
could by opening more company units but without sacrificing quality.
Franchising has the singular advantage of using franchisees' capital
rather than the company's own to increase distribution. The franchisor's
comprehensive operating system combined with a quality assurance program
to monitor compliance insures that all locations provide customers with
a uniform product and a consistent level of service and satisfaction.
The law naturally
takes a more technical view of the definition of "franchise."
The Federal Trade Commission Franchise Rule (16 C.F.R. Part 436) governs
relationships where the franchisor offers the right to distribute products
or services in connection with the franchisor's trademarks or other
commercial symbols in exchange for payments of at least $500 in the
first six months where the franchisor exercises significant control
over or provides significant assistance in the franchisee's method of
The laws of several
states have unique definitions of what constitutes a franchise, and
this requires careful legal work to insure that a franchisor's business
format and legal documents comply with both federal and state law.
| Solutions for Existing
Franchisors| Solutions for
the New Franchisor | Contact
Solutions for the Prospective
Franchisee | About the Firm |
Resources | Attorney