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What is a Franchise?

A franchise business is a legal and commercial relationship between the owner of a service mark, trademark, advertising symbol or trade name and an individual or a group of individuals who wish to use that identification in a business. The franchise business is a method a company uses to sell their products and/or services through a third party independent operator.

The franchisor is the company or individual who owns the products and/or services and they authorize the sell of their products and/or services in either a retail space or designated geographical area to the independent operator. The third party independent operator is known as the franchisee. The franchisee pays the franchisor an initial fee and royalities for the right to sell the products and/or services.

Franchising allows a business to expand its operations without having to provide capital, management or employees for each location. This allows a franchisor to increase its profits rapidly. The franchisees, as individuals who own their own business, are more inclined to work hard to make that business a success.

One disadvantage of owning a franchise is that the franchisor regulates how the business will be operated, such as advertising, retail store layout and colors, type of equipment used, etc. Another disadvantage is that once the franchisee learns how to operate a business they resent continued royalty payments.