Franchise

A franchise is a type of license that grants a franchisee access to a franchisor’s proprietary business knowledge, processes, and trademarks, which are set out in a Franchise Disclosure Document. This explains the franchise fees, expenses, performance expectations and other key operating details, defining the conditions under which the franchisee is permitted to sell a product or service under the franchisor’s business name. Typically, a franchise agreement includes three categories of payment to the franchisor. First, the franchisee must pay an up-front fee to purchase the controlled rights, or trademark. Second, the franchisor often receives payment for providing training, equipment, or business advisory services. Finally, the franchisor receives ongoing royalties or a percentage of the operation’s sales.

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