There are numerous state law definitions of what is legally considered a franchise. The Federal Trade Commission has yet another definition. You don’t need to know those unless perhaps you are a franchise lawyer.
For simplicity’s sake, let’s use this definition: A franchise is a business relationship between a corporation that owns an identified brand (called a “Franchisor”) and an individual that pays money for a license to conduct business under that brand (called a “Franchisee”).The rules of the relationship are documented and governed by a written agreement called a franchise agreement.
You are probably encountering several franchises every day. Have you seen a Subway, McDonalds, Domino’s, Papa John’s, Chili’s, Haircuttery, Supercuts, Hollywood Tans? All franchises. There are thousands of franchises in every imaginable area of business.
The most telling sign of a franchise relationship is common brand identification such as logo, name, and advertising. For example, every Subway looks the same, acts the same, and advertises in the same way.
Now that we know what a franchise is, let’s look deeper into that bound multi-page document the franchisor hands out.
Next post – What is a franchise disclosure document?