We deal with franchising on a daily basis: it is how the majority of popular businesses in many areas operate. The franchise is popular because it allows you to start a business quickly and with a successful business model already in place – there is no need to develop a new business idea while risking start-up capital. Franchising is used by entrepreneurs who want to expand their domestic market or enter international markets, and it also aids in the distribution of a product or service. We attempted to reveal the main aspects of concluding a franchise agreement and managing a franchise in this article.
A franchisor is a natural or legal person who owns all of a company's rights and trademarks and licenses a third party to conduct business under his trademark. By doing so, it authorizes the franchisee to exercise all business rights and trademarks. Because the franchisor owns the trademark, he determines the requirements for licensing the franchisee to sell goods or services under the existing trademark.
A franchisee is a private business owner or company that wants to sell/provide services under a large company's TM; in exchange, the franchisor provides them with a ready-made corporate name, operating model, and licensed expertise. As a result, the franchisee gains the ability to trade under the franchise's trademark.
The only difference between this business model and the division of the «parent» company is that the franchise is managed by a separate franchisee. Franchisees do not have the authority to change the guidelines established by the franchise owner, and they must pay a perpetual royalty to the franchisor.
For a set period, franchising grants the right to use the customer's experience and brand. This is a type of commercial agreement in which a business owner grants another person the right (license) to sell his product/service under his own brand in a specific geographic area.
The recipient must pay the following fees in order to use the franchise:
The franchisee is the owner and manager of the outlet, but the franchisor retains control over the method of selling goods/services and the application of the business model. The franchisee does not have the freedom to conduct business as he sees fit; instead, he must follow the rules and restrictions established by the franchisor. There are no established rules for establishing restrictions and requirements for obtaining a franchise; they are prescribed individually in each case.
For a variety of reasons, franchising licenses are a popular business model:
Those considering starting a franchise should research some of the duties that the franchisor must carry out in relation to the franchisee:
In turn, the franchisee is in charge of daily business processes such as:
A franchise agreement is considered for the parties to have the entitlement to use the franchisor's brand name. The buying party pays a commission to the franchise owner in exchange for allowing to use the franchise. The person who acquires the franchise receives the rights of a branch of the mother company, which allows him to advertise the franchisor's goods and services. A franchise could indeed typically last for 5 years or more. A contract term extension can be granted with the consent of both parties.
Before joining into a business arrangement through the selling and buying of a franchise, the parties must understand that the franchise agreement implies the franchise owner granting the privilege to use its copyrights (license and trademarks) and the franchisee charging royalties to the franchise owner and providing a portion of its profits, unless the parties agree otherwise in advance. The parties' signatures on the franchising agreement give legal force to the franchising relations – this is an agreement that specifies all rights and obligations, as well as franchise conditions. The franchisee should follow the franchisor's contract terms, which are underlined in a legally binding agreement called the franchising settlement. The agreement safeguards the franchisor's copyrights and establishes conditions for the operation of his franchise. In accordance with the franchise agreement, the franchisee is obligated to comply with the requirements set forth in the parent company's policy on doing business.
A typical franchise agreement includes two parties:
The three major types of franchising are as follows:
Product/brand franchising entails the franchisee only working with the products of the manufacturer.
Business-to-business franchising entails the franchisor providing the franchisee with the entire business package, including training, the provision of its brand, and the uniformity of goods and services across geographic boundaries with a high degree of standardization.
Production franchise – the franchisee receives the right to manufacture and sell the TM owner's goods while using his trademark and name.
The franchise is divided into three categories based on the level of involvement:
Because the process of regulating a franchise differs by country, it is worthwhile to seek advice from qualified specialists. The experts at IQ Decision UK can provide franchise advice and walk you through the entire franchise process in Europe, Asia, the United States, and other regions.
To receive a consultation, please fill out a quick contact form on our website or use the information in the «Contacts» section. Order support for a franchise purchase transaction and receive qualified assistance from lawyers who will assist you in completing all necessary processes quickly and with minimal risk.
Franchising is the process by which a company's permanent owner, known as a «franchisor», sells the rights to use its company name, trademarks, and business model to independent operators, known as «franchisees».
In general, there are three types of franchise agreements:
To purchase a franchise and begin operations, the franchisee must enter into a special agreement with the franchisor. When purchasing a franchise and entering into a franchise agreement, the business owner typically receives a one-time franchise fee from the franchisee, as well as a fixed percentage of sales proceeds and other fees.