Jargon Buster
Common franchising terms and what they mean.
Franchise
The term ‘franchise’ or more specifically ‘business format franchise’ describes a specific kind of licensing arrangement where the owner of a business (the franchisor) grants to another person (the franchisee) the right to run a copy of that business, usually within a limited area and for a limited period of time. The word ‘copy’ is important here. A common, but often unsuccessful form of franchising just copies the brand and leaves the franchisee to get on with it. In a modern franchise, the franchisee should get everything they need to be able to run the business the way the franchisor does, without having to learn the hard way what works and what doesn’t. The franchisor gets the opportunity to grow more quickly with less investment than they would otherwise need and without the risk of damaging their brand through inconsistent service.
Business Format Franchise See Franchise
Franchisor The party granting the franchise license
Franchisee The party acquiring the license to operate the franchise
Franchise Agreement
The contract between the Franchisor and the Franchisee. It documents the rights and obligations of each party - in other words, what the Franchisor undertakes to do as part of the agreement and what they get in return plus what the Franchisee undertakes to do as part of the agreement and what they get in return. It will also document what happens if either party fails to meet their obligations.
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