franchise

1. A privilege or right officially granted a person or a group by a government, especially:
   1. The constitutional or statutory right to vote.
   2. The establishment of a corporation's existence.
   3. The granting of certain rights and powers to a corporation.
   4. Legal immunity from servitude, certain burdens, or other restrictions.
2. 1. Authorization granted to someone to sell or distribute a company's goods or services in a certain area.
   2. A business or group of businesses established or operated under such authorization.
   3. A brand name under which a series of products is released.
3. The territory or limits within which immunity, a privilege, or a right may be exercised.
4. A professional sports team.

[Middle English fraunchise, from Old French franchise, from franche, feminine of franc, free, exempt. See frank¹.]

A type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchisor) proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name. In exchange for gaining the franchise, the franchisee usually pays the franchisor initial start-up and annual licensing fees.

Investopedia Says:
Franchises are a very popular method for people to start a business, especially for those who wish to operate in a highly competitive industry like the fast-food industry. One of the biggest advantages of purchasing a franchise is that you have access to an established company's brand name; meaning that you do not need to spend further resources to get your name and product out to customers.

Related Links:
If you like being your own boss, this is not the job for you. Is Buying A Franchise Wise?
Do you know how your companies really make their money? Learn to assess the systems by which businesses generate their revenue. Getting To Know Business Models
We look at a retailer's inventory turnaround times, its receivables as well as its collection period. Measuring Company Efficiency

1. License granted by a company (the franchisor) to an individual or firm (the franchisee) to operate a retail, food, or drug outlet where the franchisee agrees to use the franchisor's name; products; services; promotions; selling, distribution, and display methods; and other company support. McDonald's, Midas, and Holiday Inn are all examples of franchise operations.

2. Right to market a company's goods or services in a specific territory, which right has been granted by the company to an individual, group of individuals, marketing group, retailer, or wholesaler. See also brand franchise.

3. Specific territory or outlet involved in such a right.

4. Right of an advertiser to exercise an option to sponsor a television or radio show, as well as the granting of such a right by the broadcast medium (as "to exercise a franchise" or "to grant a franchise").

5. Right granted by a local or state government to a cable television operator to offer cable television service in a community.

1. License granted by a company (the franchisor) to an individual or firm (the franchisee) to operate a retail, food, or drug outlet where the franchisee agrees to use the franchisor's name; products; services; promotions; selling, distribution, and display methods; and other company support. McDonald's, Midas, and Holiday Inn are all examples of franchise operations.

2. Right to market a company's goods or services in a specific territory, which right has been granted by the company to an individual, group of individuals, marketing group, retailer, or wholesaler.

3. Specific territory or outlet involved in such a right.

4. Right of an advertiser to exercise an option to sponsor a television or radio show, as well as the granting of such a right by the broadcast medium (as ‘to exercise a franchise' or ‘to grant a franchise').

5. Right granted by a local or state government to a cable television operator to offer cable television service in a community.

An arrangement between a franchisor and franchisee through which the franchisee uses the company name of the franchisor and is provided specified business services in exchange for a franchise fee. The fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business.Example: In real estate brokerage, locally owned firms may operate as franchises of such national companies as Century 21, RE/MAX, and Red Carpet. The franchisor advertises the name and logo of the company, offers training for salespersons, and offers or provides other services to the franchisee.

The right to vote. Universal franchise is a twentieth-century phenomenon. In Britain, male franchise was extended in 1832, 1867, and 1884, and became universal in 1918; female franchise was granted in part 1918 and fully 1928 (see also suffrage). Earlier, almost no democracy permitted all adult women to vote; Athenian democracy disenfranchised women, slaves, and non-natives of Athens.

A special privilege to do certain things that is conferred by government on an individual or a corporation and which does not belong to citizens generally of common right, e.g., a right granted to offer cable television service.

A privilege granted or sold, such as to use a name or to sell products or services. In its simplest terms, a franchise is a license from the owner of a trademark or trade name permitting another to sell a product or service under that name or mark. More broadly stated, a franchise has evolved into an elaborate agreement under which the franchisee undertakes to conduct a business or sell a product or service in accordance with methods and procedures prescribed by the franchisor, and the franchisor undertakes to assist the franchisee through advertising, promotion, and other advisory services.

The right of suffrage; the right or privilege of voting in public elections. Such right is guaranteed by the Fifteenth, Nineteenth, and Twenty-fourth Amendments to the U.S. Constitution.

As granted by a professional sports association, franchise is a privilege to field a team in a given geographic area under the auspices of the league that issues it. It is merely an incorporeal right.

Government Franchises

The consideration to be given by a person or corporation in order to receive a franchise from the government can be an agreement to pay money, to bear some burden, or to perform a public duty. The primary objective of all grants of franchises is to benefit the public; the rights or interests of the grantee, the franchisee, are secondary. A corporation is a franchise, and the various powers conferred on it are also franchises, such as the power of an insurance corporation to issue an insurance policy. Various types of business — such as water companies, gas and electric companies, bridge and tunnel authorities, taxi companies, along with all types of corporations — operate under franchises.

The charter of a corporation is also called its general franchise. A franchise tax is a tax imposed by the state on the right and privilege of conducting business as a corporation for the purposes for which it was created and in the conditions that surround it.

Power to Grant

The power to grant franchises is vested in the legislative department of the government, subject to limitations imposed by the state constitution. A franchise can be derived indirectly from the state through the agency that has been duly designated for that purpose, such as the local transportation agency that can grant a franchise for bus routes. Franchises are usually conferred on corporations, but natural persons can also acquire them. The grant of a franchise frequently contains express conditions and stipulations that the grantee, or holder, of the franchise must perform.

Not every privilege granted by a governmental authority is a franchise. A franchise differs from a license, which is merely a personal privilege or temporary permission to do something; it can be revoked and can be derived from a source other than the legislature or state agencies. A franchise differs from a lease, which is a contract for the possession and profits of property in exchange for the payment of rent.

Regulation

Once a franchise is granted, its exercise is usually subject to regulation by the state or some duly authorized body. In the exercise of police power — which is the authority of the state to legislate to protect the health, safety, welfare, and morals of its citizens — local authorities or the political subdivisions of the state can regulate the grant or exercise of franchises.

Right to Compete

While a franchise can be exclusive, exclusiveness is not a necessary element of it. Nonexclusive franchises — in- cluding those to function or operate as a public utility — do not include the right to be free of competition. The grant of such a franchise does not prevent the grant of a similar one to another, or lawful competition on the part of public authorities. The holder of a nonexclusive franchise is legally entitled to be free from the competition of one not having a valid franchise to compete. One can institute a proceeding for an injunction — a court order that commands or prohibits a certain act — and monetary damages for the unlawful invasion of the franchise. Although the franchise is not exclusive, one is entitled to protection against competition from persons operating without a franchise.

Duration

The legislature can prescribe the duration of a franchise. The powers of local authorities or political subdivisions of the state depend upon the statute that confers the power to make grants and upon any constitutional limitation.

A franchise can be terminated by the mutual agreement of the state that is the franchisor, and the grantee or the franchisee. It can be lost by abandonment, such as when a corporation dissolves because of its fiscal problems. A mere change in the government organization of a political subdivision of a state does not divest franchise rights that have been previously acquired with the consent of local authorities. A franchise cannot be revoked arbitrarily unless that power has been reserved by the legislature or proper agency.

Forfeiture

A franchise can be subject to forfeiture due to nonuse. Misuse or failure to provide adequate services under the franchise can also result in its loss. The remedy for nonuse or misuse lies with the state. Persons other than the state or public authorities cannot challenge the validity of the exercise of a franchise unless they can demonstrate that they have a peculiar interest in the matter distinct from that of the general public.

Invasion of the Franchise

A person or corporation holding a valid franchise can obtain an injunction to prevent the unlawful invasion of the franchise rights and can sue for monetary damages if there has been financial loss as a result of the infringement.

Transfer of Franchises

Subject to applicable constitutional or statutory limitation, franchises can be sold or transferred. Where the franchises involve public service, they cannot be sold or transferred unless there is authorization by the state. The person or corporation purchasing the franchise in an authorized sale takes it subject to its restrictions.

Private Franchises

Certain written contractual agreements are sometimes loosely referred to as franchises, although they lack the essential elements in that they are not conferred by any sovereignty. The franchise system or method of operation, which is of comparatively recent development, has had a phenomenal growth in particular consumer product industries, such as automobile sales, fast foods, and ice cream. The use of a franchise in this manner has enabled individuals with minimal capital to invest to become successful members of the business community.

Under the most common method of operation, the cornerstone of a franchise system must be a trademark or trade name of a product. A franchise is a license from an owner of a trademark or trade name permitting another to sell a product or service under the name or mark. A franchisee agrees to pay a fee to the franchisor in exchange for permission to operate a business or sell a product or service according to the methods and procedures prescribed by the franchisor as well as under the trade name or trademark of the franchisor. The franchisee is usually granted an exclusive territory in which he or she is the only distributor of the particular goods or services in that area. The franchisor is usually obligated by contract to assist the franchisee through advertising, promotion, research and development, quantity purchasing, training and education, and other specialized management resources.

Before 1979 fewer than twenty state legislatures had enacted laws to protect prospective franchisees from being deceived by the falsehoods of dishonest franchisors. These laws, known as financial disclosure laws, mandated that anyone offering franchises for sale in the state had to disclose material facts — such as the true costs of operating a franchise, any recurring expenses, and substantiated reports of profit earned — that would be instrumental in the making of an informed decision to purchase a franchise.

In states that did not have such legislation, the unsophisticated investor was at the mercy of the franchisor's statements. A victimized franchisee could sue a franchisor for breach of contract, but this was an expensive proposition for someone who typically had invested virtually all of his or her financial resources in an unprofitable franchise. Franchisors confronted with numerous lawsuits often would declare bankruptcy so that the franchisees had little possibility of recouping any of their investments.

The Federal Trade Commission received numerous complaints about inequitable and dishonest practices in the sale of such franchises. In late 1978 it issued regulations, effective October 21, 1979, that require franchisors and their representatives to disclose material facts necessary to make an informed decision about the proposed purchase of a franchise and that establish certain practices to be observed in the franchisor-franchisee relationship.

A franchisor must disclose the background of the company — including the business experience of its high-level executives — for the previous five years; and whether any of its executives, within the last seven years, have been convicted of a felony, have pleaded nolo contendere to fraud, have been held liable in a civil action for fraud, are subject to any currently effective court order or administrative agency ruling concerning the franchise business or fraud, or have been involved in any proceedings for bankruptcy or corporate reorganization for insolvency during the previous seven years.

In addition, there must be a factual description of the franchise as well as an unequivocal statement of the total funds to be paid, such as initial franchise fees, deposits, down payments, prepaid rent on the location, and equipment and inventory purchases. The conditions and time limits to obtain a refund, as well as its amount, must be clear as well as the amount of recurring costs, such as royalties, rents, advertising fees, and sign rental fees. Any restrictions imposed — such as on the amount of goods or services to be sold, the types of customers with which the franchisee can deal — the geographical area, and whether the franchisee is entitled to protection of his or her territory by the franchisor must be discussed. The duration of the franchise, in addition to reasons why the franchise can be terminated or the franchisee's license not renewed when it expires, also must be explained. The number of franchises voluntarily terminated or terminated by the franchisor must be reported. The franchisor must disclose the number of franchises that were operating at the end of the previous year, as well as the number of company-owned outlets. The franchisee must also be supplied with the names, addresses, and telephone numbers of the franchisees of the ten outlets nearest the prospective franchisee's location, so that the prospective franchisee can contact them to obtain a realistic perspective of the daily operations of a franchise.

If the franchisor makes any claims about the actual or projected sales of its franchises or their actual or potential profits, facts must be presented to substantiate such statements.

All of these facts — embodied in an accurately, clearly, and concisely written document — must be given to the prospective franchisee at the first personal meeting or at least ten days before any contractual relationship is entered or deposit made, whichever date is first. The purpose of this disclosure statement is to provide the potential investor with a realistic view of the business venture upon which he or she is about to embark. Failure to comply with the FTC regulation could result in a fine of up to $10,000 a day for each violation.

Some states have also enacted laws that prohibit a franchisor from terminating a franchise without good cause, which usually means that the franchisee has breached the contract. In such a case, the franchisor is entitled to reacquire the outlet — usually by repurchasing the franchisee's assets, such as inventory and equipment.

In states without "good cause" laws, franchisees claim that they are being victimized by franchisors who want to reclaim outlets that have been proved to be highly profitable. They allege that the franchisor imposes impossible or ridiculous demands that cannot be met to harass the franchisee into selling the store back to the franchisor at a fraction of its value. Com- pany-owned outlets yield a greater profit to the franchisor than the royalty payments received from the franchisee. Other franchisees claim that their licenses have been revoked or not renewed upon expiration because they complained to various state and federal agencies of the ways in which the franchisors operate. Such controversies usually are resolved in the courtroom.

In business, a relationship between a manufacturer and a retailer in which the manufacturer provides the product, sales techniques, and other kinds of managerial assistance, and the retailer promises to market the manufacturer's product rather than that of competitors. For example, most automobile dealerships are franchises. The vast majority of fast food chains are also run on the franchise principle, with the retailer paying to use the brand name.

In politics, the right to vote. The Constitution left the determination of the qualifications of voters to the states. In the late eighteenth and early nineteenth century, states usually restricted the franchise to white men who owned specified amounts of property. Gradually, poll taxes were substituted for property requirements. Before the Civil War, the voting rights of blacks were severely restricted, but the Fifteenth Amendment to the Constitution, declared ratified in 1870, prohibited states from abridging the right to vote on the basis of race. Nevertheless, southern states used a variety of legal ploys to restrict black voting until passage of the Voting Rights Act of 1965. Women were not guaranteed the right to vote in federal elections until ratification of the Nineteenth Amendment in 1920. In 1971 the Twenty-sixth Amendment lowered the voting age from twenty-one to eighteen. (See suffrage and suffragette.)

This article's factual accuracy is disputed. Please see the relevant discussion on the talk page. (June 2009)

A typical Mcdonalds franchise.

Franchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

Franchising has been around for many centuries but did not come to prominence until the 1930s in the United States, when the establishment of electricity, vehicles, and, in the 1950s, the Interstate Highway system helped propel modern franchising, most notably franchise-based food service establishments. According to the International Franchise Association approximately 4% of all businesses in the United States are franchises.

Contents 1 Overview 2 History 3 Businesses for which franchising works best 4 Advantages 4.1 For franchisors 4.1.1 Expansion 4.1.2 Legal considerations 4.1.3 Operational considerations 4.2 For franchisees 4.2.1 Employment 4.2.2 Quick start 4.2.3 Expansion 4.2.4 Training 5 Disadvantages 5.1 For franchisors 5.1.1 Limited pool of viable franchisees 5.1.2 Control 5.2 For franchisees 5.2.1 No guarantee 5.2.2 Control 5.2.3 Price 5.2.4 Conflicts 6 Legal aspects 6.1 Australia 6.2 United States 6.3 Russia 6.4 UK 7 Social franchises 8 Event franchising 9 See also 10 References 11 External links

Overview

The term "franchise" is used to describe business systems which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business. This is called "product franchising" or "trade name franchising".

Cancellations or terminations of franchise agreements before the completion of the contract have serious consequences for franchisees. Franchise agreement terms typically result in a loss of the sunk costs of the first-owner franchisees who build out the branded physical units and who lease the branded name, marks, and business plan from the franchisors if the franchise is canceled or terminated for any reason before the expiration of the entire term of the contract.^{[citation needed]} (Item 15 of the Rule of the Federal Trade Commission requires disclosure of terms that cover termination of the franchise agreement and the terms substantiate this statement)

History

The examples and perspective in this section may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.

Franchising dates back to at least the 1850s; Isaac Singer, who made improvements to an existing model of a sewing machine, wanted to increase the distribution of his sewing machines. His effort, though unsuccessful in the long run, was among the first franchising efforts in the United States. A later example of franchising was John S. Pemberton's successful franchising of Coca-Cola.^[1] Early American examples include the telegraph system, which was operated by various railroad companies but controlled by Western Union^[2], and exclusive agreements between automobile manufacturers and operators of local dealerships.^[3] Earlier models of product franchising collected royalties or fees on a product basis and not on the gross sales of the business operations of the franchisees.

Modern franchising came to prominence with the rise of franchise-based food service establishments. This trend started before 1933 with quick service restaurants such as A&W Root Beer.^[4] In 1935, Howard Deering Johnson teamed up with Reginald Sprague to establish the first modern restaurant franchise.^[5][6] The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee.

The growth in franchises picked up steam in the 1930s when such chains as Howard Johnson's started franchising motels.^[7] The 1950s saw a boom of franchise chains in conjunction with the development of the U.S. interstate highway system.^[8] Fast food restaurants, diners and motel chains exploded. In regard to contemporary franchise chains, McDonald's is arguably the most successful worldwide with more restaurant units than any other franchise network.

According to Franchising in the Economy, 1991-1993, a study done by the University of Louisville, franchising helped to lead America out of its economic downturn at the time.^[9] Franchising is a unique business model that has encouraged the growth of franchised chain formula units because the franchisors collect royalties on the gross sales of these units and not on the profits. Conversely, when good jobs are lost in the economy, franchising picks up because potential franchisees are looking to buy jobs and to earn profits from the purchase of franchise rights. The manager of the United States Small Business Administration's Franchise Registry concludes that franchising there is continuing to grow and that franchising is growing in the national economy.^[10]

Franchising is a business model used in more than 70 industries and that generates more than $1 trillion in U.S. sales annually.^[11]

Businesses for which franchising works best

Businesses for which franchising is said to work best have the following characteristics:

• Businesses with a good track record of profitability.
• Businesses built around a unique or unusual concept.
• Businesses with broad geographic appeal.
• Businesses which are relatively easy to operate.
• Businesses which are relatively inexpensive to operate.
• Businesses which are easily duplicated.^[12]

Advantages

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For franchisors

Expansion

Franchising is one of the only means available to access venture investment capital without the need to give up control of the operation of the chain in the process. After the brand and formula are carefully designed and properly executed, franchisors are able to sell franchises and expand rapidly across countries and continents using the capital and resources of their franchisees, and can earn profits commensurate with their contribution to those societies while greatly reducing the risk and expense that would be inherent in conventional chain operations

Additionally, the franchisor may choose to leverage the franchisee to build a distribution network.

Legal considerations

The franchisor is relieved of many of the mundane duties necessary to start a new outlet, such as obtaining the necessary licenses and permits. In some jurisdictions, certain permits (especially alcohol licenses) are more easily obtained by locally based, owner-operator type applicants while companies based outside the jurisdiction (and especially if they originate in another country) find it difficult if not impossible to get such licences issued to them directly. For this reason, hotel and restaurant chains that sell alcohol often have no viable option but to franchise if they wish to expand to another state or province.

Additionally, the franchisor is relieved of the obligation to carry liability insurance on the independently owned franchise units that produce the gross sales of the franchised system because this is the obligation and responsibility of the franchisees under the franchise agreement. As long as the franchisor's operational manuals are efficient and followed by the franchisees, the franchisors are generally almost always protected from any liability for any incident that occurs on the property of the franchisee.

Franchisors can sell franchises without making any representations as to success or failure of the units in the written franchise disclosure documents and in the written franchise agreements. Therefore, franchisors are generally protected from lawsuits from their franchisee because of the non-negotiable contracts that require franchisees to acknowledge, in effect, that they are buying the franchise knowing that there is risk, and that they have not been promised success or profits by the franchisor.

Operational considerations

Franchisees are said to have a greater incentive than direct employees to operate their businesses successfully because they have a direct stake in the start up of the branded business and the tangible assets that wear the brand name. The need of franchisors to closely scrutinize the day to day operations of franchisees (compared to directly-owned outlets) is greatly reduced.

Franchisors can maximize their profits on the gross sales of the franchisees and avoid the operational expenses for the physical units that wear their brand names. Franchisors can minimize their risk and thus increase their profits because their franchisees bear the expense of operating the units and the expense of being employers, in compliance with existing city, state, and federal laws.

For franchisees

Employment

Opening a franchise is a way of owning a business.^[13][14][15]

Quick start

As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting.

Expansion

With the help of the expertise provided by the franchisors, the franchisees may be able to take their franchised businesses to a level which they wouldn't have been able to without the expert guidance of their franchisors.

Training

Franchisors often offer franchisees significant training, which is not available for free to individuals starting their own business. Although training is not always free for franchisees, it is sometimes supported through the traditional franchise fee that the franchisor collects and tailored to the business that is being started. When training fees and travel expenses, etc.. are required beyond the initial franchise fee, these fees are deductible as part of the startup expenses of the business.

Many franchisors nowadays also have an online Corporate University to help franchisees with both initial and ongoing training.^[16] An online Corporate University has the advantage of enabling anytime, anywhere learning and is generally made available free of charge to the franchisee.

Disadvantages

For franchisors

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Limited pool of viable franchisees

In any city or region there may be only a limited pool of prospects who have both the financial resources and the desire to purchase and start up a franchised business, as compared to the pool of individuals who can be hired and trained to competently manage directly-owned businesses, as paid employees. However, in periods of recession where traditional good jobs are in short supply, this disadvantage disappears because those who can't find good jobs are willing to invest money in a franchise as a means of self-employment.

Control

Successful franchising necessitates a much more careful vetting process when evaluating the limited number of potential franchisees than would be required in the hiring of direct employees who may have experience in the concept sector. An incompetent manager of a directly-owned outlet can easily be replaced, while, regardless of the local laws and agreements in place, removing an incompetent franchisee who owns the tangible assets of the business is much more difficult. Incompetent franchisees can easily damage the public's goodwill towards the franchisor's brand by providing inferior goods and services. If a franchisee is cited for legal violations, (s)he will probably face the legal consequences alone but the franchisor's reputation could still be damaged.

For franchisees

No guarantee

Usually, there is no guarantee of financial success for the franchisee made by the franchisor in the written disclosure circular and the actual franchise agreement. While the estimated startup costs of the franchise are an implied "earnings claim" some businesses do fail, including franchised outlets. Unfortunately, the unit financial performance statistics are not required to be disclosed to new buyers of franchises under Federal Regulatory Policy, the FTC Rule, and this omission makes it impossible for new buyers of franchises to assess the odds of success and failure of their investment in the franchise in terms of profitability and failure as experienced on a unit basis of the franchise system. (See article in American Business Law Journal, 1 January 2003, entitled Franchising Fraud: the continuing need for reform, 1 January 2003, published on the Internet in mid 2008.)

Control

For franchisees, the main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, marketing, the franchisee is required to follow the system and get approval for changes from the franchisor. For these reasons, franchisees and entrepreneurs are very different. The United States Office of Advocacy of the SBA indicates that a franchisee "is merely a temporary business investment where he may be one of several investors during the lifetime of the franchise. In other words, he is "renting or leasing" the opportunity, not "buying a business for the purpose of true ownership."^[17] Additionally, "A franchise purchase consists of both intrinsic value and time value. A franchise is a wasting asset due to the finite term: the franchisor is only obliged to renew the franchise if it chooses to contract for that obligation."^[18]

Price

Starting and operating a franchise business carries expenses. In choosing to adopt the standards set by the franchisor, the franchisee often has no further choice as to signage, shop fitting, uniforms etc. The franchisee may not be allowed to source less expensive alternatives. Added to that is the franchise fee and ongoing royalties and advertising contributions. The contract may also bind the franchisee to such alterations as demanded by the franchisor from time to time. (As required to be disclosed in the state disclosure document and the franchise agreement under the FTC Franchise Rule)

Conflicts

The franchisor/franchisee relationship can easily cause conflict if either side is incompetent (or acting in bad faith). An incompetent franchisor can destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits. Franchise agreements are unilateral contracts or contracts of adhesion wherein the contract terms generally are advantageous to the franchisor when there is conflict in the relationship.^[19] Additionally, the legal publishing website Nolo.com listed the "Lack of Legal Recourse" as one of Ten Good Reasons Not to Buy a Franchise:

“

As a franchisee, you have little legal recourse if you're wronged by the franchisor. Most franchisors make franchisees sign agreements waiving their rights under federal and state law, and in some cases allowing the franchisor to choose where and under what law any dispute would be litigated. Shamefully, the Federal Trade Commission (FTC) investigates only a small minority of the franchise-related complaints it receives.[20]

”

Legal aspects

Australia

In Australia, franchising is regulated by the Franchising Code of Conduct, a mandatory code of conduct made under the Trade Practices Act 1974.

The Code requires franchisors to produce a disclosure document which must be given to a prospective franchisee at least 14 days before the franchise agreement is entered into.

The Code also regulates the content of franchise agreements, for example in relation to marketing funds, a cooling-off period, termination and the resolution of disputes by mediation.

The federal government is currently considering recommended changes to the Code of Conduct contained in the report, 'Opportunity not Opportunism: Improving conduct in Australian Franchising' tabled by a Parliamentary inquiry into franchising on 4 December 2008.^[21]

Some experts have warned that any push to increase regulation of the franchising sector, could make it a less attractive means of doing business.^[22]

United States

In the United States, franchising falls under the jurisdiction of a number of state and federal laws. Franchisors are required by the Federal Trade Commission to provide a Franchise Disclosure Document to disclose essential information to potential franchisees about their purchase. States may require the FDD to contain specific requirements but the requirements in the State disclosure documents must be in compliance with the Federal Rule that governs federal regulatory policy.^[23] There is no private right of action under the FTC Rule for franchisor violation of the rule but fifteen or more of the States have passed statutes that provide a private right of action to franchisees when fraud can be proved under these special statutes.

The franchise agreement is the essential contract signed by the franchisee and the franchisor that formalizes and specifies the terms of the business arrangement. It also details many issues discussed in less depth in the FDD. Unlike the FDD, the franchise agreement is a fluid document, crafted to meet the specific needs of the franchise, with each having its own set of standards and requirements. But much like a lease, there are elements commonly found in every agreement.^[23] "There is a difference between a discrete contract and a relational contract, and franchise contracts are a distinct subset of relational contracts." Franchise contracts form a unique and ongoing relationship between the parties. "Unlike a traditional contract, franchise contracts establish a relationship where the stronger party can unilaterally alter the fundamental nature of the obligations of the weaker party......."^[24] Because the franchise agreement is a complex legal document that obligates both the franchisor and the franchisee to perform a variety of duties, each party generally consults extensively with an attorney before entering into a franchise agreement.

There is no federal registry of franchises or any federal filing requirements for information. States are the primary collectors of data on franchising companies, and enforce laws and regulations regarding their presence and their spread in their jurisdictions. In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on "formula businesses."^[25]

The majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees. Since 1980, the U.S. Supreme Court has dealt with cases involving direct franchisor/franchisee conflicts at least four times, and three of those cases involved a franchisee who was resisting the franchisor's motion to compel arbitration. Two of the latter cases involved large, well-known restaurant chains (Burger King in Burger King v. Rudzewicz and Subway in 517 US 681 (1996) Doctor's Associates, Inc. v. Casarotto); the third involved Southland Corporation, the parent company of 7-Eleven in Southland Corp. v. Keating, 465 US 1 (1984) .

Russia

In Russia, under chapter 54 of the Civil Code (passed 1996), franchise agreements are invalid unless written and registered, and franchisors cannot set standards or limits on the prices of the franchisee’s goods. Enforcement of laws and resolution of contractual disputes is a problem: Dunkin' Donuts chose to terminate its contract with Russian franchisees that were selling vodka and meat patties contrary to their contracts, rather than pursue legal remedies.^[26]

UK

In the United Kingdom, there are no franchise-specific laws; franchises are subject to the same laws that govern other businesses. For example, franchise agreements are produced under regular contract law and do not have to conform to any further legislation or guidelines.^[27] There is some self-regulation through the British Franchise Association (BFA). However there are many franchise businesses which do not become members, and many businesses that refer to themselves as franchisors that do not conform to these rules.^{[citation needed]} There are several people and organisations in the industry calling for the creation of a framework to help reduce the number of "cowboy" franchises and help the industry clean up its image.^[who?]

On 22 May 2007, hearings were held in the UK Parliament concerning citizen initiated petitions for special regulation of franchising by the government of the UK due to losses of citizens who had invested in franchises. The Minister of Industry, Margaret Hodge, conducted hearings but resisted any government regulation of franchising with the advice that government regulation of franchising might lull the public into a false sense of security. The Minister of Industry indicated that if due diligence were performed by the investors and the banks, the current laws governing business contracts in the UK offered sufficient protection for the public and the banks.^[28]

Social franchises

In recent years, the idea of franchising has been picked up by the social enterprise sector, which hopes to simplify and expedite the process of setting up new businesses. A number of business ideas, such as soap making, wholefood retailing, aquarium maintenance, and hotel operation, have been identified as suitable for adoption by social firms employing disabled and disadvantaged people.

The most successful example is probably the CAP Markets, a steadily growing chain of some 50 neighborhood supermarkets in Germany. Other examples are the St. Mary's Place Hotel in Edinburgh and the Hotel Tritone in Trieste.

Social franchising also refers to a technique used by governments and aid donors to provide essential clinical health services in the developing world.

Event franchising

Event franchising is the duplication of public events in other geographical areas, while retaining the original brand (logo), mission, concept and format of the event.^[29] As in classic franchising, event franchising is built on precisely copying successful events. Good example of event franchising is the World Economic Forum, or just Davos forum which has regional event franchisees in China, Latin America etc. Likewise, the alter-globalist World Social Forum has launched many national events.

See also

• Franchise consulting
• List of franchises

References

1. ^ Franchising - Types Of Franchises, History Of Franchising, The Spread Of Franchising
2. ^ Lemelson Center: Archives: Western Union Collection
3. ^ http://findarticles.com/p/articles/mi_m0FJN/is_n8_v30/ai_18728418
4. ^ http://www.aw-drivein.com/About_Us.cfm A&W official site: About Us
5. ^ Allen, kolin chakma. (1998). Foodservice’s theory of evolution: Survival of the fittest. Nation’s Restaurant News 32(4), pages 14 -17.
6. ^ Howard, T. (1996). Howard Johnson: Initiator of franchised restaurants. Nation’s Restaurant News, 30(2), pages 85-86.
7. ^ Brief History (Franchise)
8. ^ Special Report: The Interstate Highway System at 50, Civil Engineering—ASCE, Vol. 76, No. 6, (June 2006), page 36
9. ^ Frandata Corporation (February 2000) The Profile of Franchising: A Statistical Abstract of UFOC Data accessed 2007-12-20
10. ^ Johnson, Darrell. Franchising continues to grow across the United States Franchising World (November 1 2007)
11. ^ Econ Study cover_title pg
12. ^ Alon, Ilan (2005), Service Franchising: A Global Perspective, New York: Springer.
13. ^ FranchiseBusiness.com.au article
14. ^ News.com.au article on Franchising
15. ^ FranchiseOpportunities.net.au article
16. ^ "Online Training for Franchisors and Retail Chains". Dual Code Inc.. http://www.dualcode.com/downloads/Online%20Training%20For%20Franchisors%20and%20Retail%20Chains.pdf. Retrieved 2009-08-06. 
17. ^ Letter, SBA Office of Advocacy, to Donald S. Clark, Secretary, The Federal Trade Commission, Re: 16 CFR Part 436, dated April 10, 1997
18. ^ Steinberg, Paul and Lescatre, Gerald. Beguiling Heresy: Regulating the Franchise Relationship, Penn State Law Review, The Dickinson School of Law, Pennsylvania State University, Volume 109, 2004, Number 1, page 211.
19. ^ Steinberg, Paul and Lescatre, Gerald. Beguiling Heresy: Regulating the Franchise Relationship, Penn State Law Review, Dickinson School of Law, Pennsylvania State University, Volume 109, (2004), Number 1, page 107.
20. ^ <KFC-ent-law-cx_nl_1002nolo.html "Ten Good Reasons Not to Buy a Franchise" Entrepreneurs lewis <3 KFC(2006-10-02)
21. ^ http://www.franchise.net.au/Article/Federal-franchising-inquiry-favours-franchisees/433011.aspx
22. ^ http://www.dlaphillipsfox.com/article/302/Over-regulation-would-harm-franchising-sector-inquiry-warned
23. ^ ^{a b} "Disclosure requirements and prohibitions concerning franchising and business opportunity ventures". United States Federal Trade Commission. 1986-01-01. http://www.ftc.gov/bcp/franchise/16cfr436.shtm. Retrieved 2007-12-27. 
24. ^ Page 114 Penn State Law Review, The Dickinson School of Law, The Pennsylvania State University, Beguiling Heresy: Regulating the Franchise Relationship, by Paul Steinberg, Gerald Lescatre, Volume 109, 2004, Number 1.
25. ^ New Rules Website
26. ^ Anttonen, Noora, Mika Tuunanen, Ilan Alon (2005), “The International Business Environments of Franchising in Russia,” Academy of Marketing Science Review, (5), 1-18.
27. ^ Franchise agreements subject to European Code of ethics
28. ^ "Franchise Industry". Daily Hansard: Column Pyramid Schemes were outlawed in the UK by The Trading Schemes Act 1996. However, the legislation was so worded that legitimate Franchise Schemes were caught by the legislation and following lobbying by the British Franchise Association a memo was issued to the British Franchise Association by the Department of Trade and Industry on the 19 July 1997 which amended the wording of the legislation. The law on statute is now impossible to follow without reference to the memo. 363WH. 22 May 2007. http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm070522/halltext/70522h0001.htm. 
29. ^ Kissikov Beknur. Franchising. 

External links

• International Franchise Association
• American Association of Franchisees and Dealers
• Canadian Franchise Association
• Franchising Association of India
• The British Franchise Association
• The Australian Franchise Association
• The Central-Asian Franchise Association
• The Franchise Association of Southern Africa
• The Franchise Association (Ukraine)

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

Dansk (Danish)
n. - franchise, koncession, fritagelse
v. tr. - give i franchise

Nederlands (Dutch)
franchise, kiesrecht, systeemlicentie, vrijheid van een bepaalde beperking, recht (om een corporatie te zijn), lidmaatschap, staatsburgerschap, recht van lidmaatschap professionele sportvereniging, franchise verlenen aan

Français (French)
n. - franchisage, (Pol) droit de vote, (Comm) franchise
v. tr. - franchiser

Deutsch (German)
n. - Wahlrecht, Konzession
v. - das Wahlrecht verleihen

Ελληνική (Greek)
n. - παραχώρηση, δικαίωμα (ψήφου), προνόμιο, προνόμιο εκμετάλλευσης επιχείρησης, δικαιοχρησία, προνόμιο αποκλειστικής διάθεσης αγαθών
v. - χορηγώ δικαίωμα ψήφου, χορηγώ ή εκμισθώνω ή πουλώ προνόμιο εκμετάλλευσης επιχειρήσεως

Italiano (Italian)
diritto di voto, diritto di suffragio, franchigia

Português (Portuguese)
n. - franquia (f)
v. - franquear

Русский (Russian)
право голоса, освобождение от налогов, право на использование торговой марки

Español (Spanish)
n. - franquicia, concesión, licencia, derecho de voto
v. tr. - liberar

Svenska (Swedish)
n. - rösträtt, medborgarrätt, privilegium, självrisk
v. - bevilja franchise (ekon.)

中文（简体）(Chinese (Simplified))
公民权, 免赔额, 特权, 给以特权

中文（繁體）(Chinese (Traditional))
n. - 公民權, 免賠額, 特權
v. tr. - 給以特權

한국어 (Korean)
n. - 투표권, 특권, 독점 판매권
v. tr. - ~의 사용을 용납하다

日本語 (Japanese)
n. - 公民権, 選挙権, 特権, 独占販売権, フランチャイズ

العربيه (Arabic)
‏(الاسم) إعفاء , امتياز تمنحه الحكومه (فعل) يمنح امتياز , يعفي‏

עברית (Hebrew)
n. - ‮זיכיון, זכות בחירה, אזרחות מלאה, חברות בארגון, זכיינות‬
v. tr. - ‮העניק זיכיון‬

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