Franchising: Model, Fees, Risks, and Regulation

Definition of franchising business practice

Franchising is a business practice in which a company (the franchisor) licenses its business model to another company or individual (the franchisee). This licensing can include know-how, procedures, intellectual property, and rights to sell branded products and services. In return, the franchisee pays required fees and agrees to follow the obligations and standards set out in a franchise agreement, which typically governs fees, territory, duration, and operating requirements. The franchisor uses franchising as an alternative growth strategy to expanding through corporate-owned outlets, because it can reduce the franchisor’s capital investment and liability risk by relying on franchisees’ resources. The relationship is usually not an equal partnership: franchisors often have legal and economic advantages, while franchisees must comply with standardized branding and operating rules. Franchising is also widely regulated in many jurisdictions, often requiring disclosure documents and setting rules for contract terms and conduct.

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Franchisor licensing of model, knowhow, and IP

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