By Franchise Law Team - Mohajerian Inc.
Franchising is a specific manner of
business, in which companies attempt to expand their market share
more rapidly and less expensively than by other means. There are
three basic types of franchises:
which grant the right to sell the company's products.
Trademark and brand name licensing allows the
licensees to use the company's trademark or brand in operating
their own business.
Business franchises which allows the franchisee
the right to use their trademarks, products, and business systems.
Business franchises usually have an
initial fee or investment for the rights to sell its goods and services
and/or use its business systems. After the initial investment, franchisees
are typically required to pay a percentage of their gross profits
to the franchisor during the length of the franchise agreement.
Purchasing the rights mentioned above,
usually entitles the franchisee to also receive initial training
and on-going support. The franchisee has responsibilities to the
franchisor in order to retain the rights above. These obligations
- Ability to meet established quality requirements
for products and services sold.
- Adhere to restrictions on how and what you can sell
while operating within the agreement.
- Meet requirements for location and site appearance.
While this list is not exhaustive, it
is important to note that franchisees have a great obligation to
the franchising company to adhere to the specifications and requirements
of the franchise agreement.
Often times the obligations of the franchisee
are well worth it, as they often carry an advantage over their non-franchised
competitors. These advantages can include: a well-recognized brand,
product, or service; proven business systems training; and uniform
business systems for ease of management with multi-units. These
advantages are integral to the statistically higher success of franchised
businesses over traditional start-ups.
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