Franchise

A franchise is a business arrangement in which a party (the franchisee) operates a business under the trademark, trade name, and proven operating system of another entity (the franchisor) in exchange for fees and ongoing royalties. The franchisor licenses the brand and a tested business model, including training, support, and often a supplied supply chain. A franchise agreement typically grants a territorial right and sets standards, performance expectations, and renewal terms.

There are two main forms of franchising. In business format franchising, the franchisee adopts the entire system—brand, manuals, training, marketing, and operating procedures. In product distribution franchising, the relationship resembles a supplier-distributor arrangement with brand autonomy and support on brand use and supply. The arrangement usually involves an initial franchise fee plus capital costs for equipment, real estate, and inventory, plus ongoing royalties and contributions to a marketing fund.

Franchisors provide brand identity, standardized operating methods, training, supplier networks, and ongoing support. Franchisees contribute capital and local management, comply with standards, maintain quality, and report performance. The model enables rapid expansion, brand consistency, and shared risk, while reducing the need for the franchisor to finance new locations.

Advantages include quicker market entry, established brand recognition, and support networks for the franchisee, as well as scalable growth for the franchisor. Disadvantages can include loss of autonomy, ongoing financial commitments, potential conflicts over standards, and risks if the franchised network underperforms.

Legal frameworks vary by country. In the United States, franchise sales are governed by disclosures through the Franchise Disclosure Document and applicable state laws, with terms covering territory, duration, renewal, termination, and non-compete provisions. Global adoption spans food service, retail, hospitality, fitness, and professional services.