Franchising

Franchising is a business practice where a company licenses its business model to another company. It can involve the franchisor licensing some or part of its knowhow, procedures, intellectual property and other rights to sell its branded products and services to a franchisee. In return, the franchisee pays certain fees and agrees to comply with certain obligations, typically set out in a franchise agreement. For the franchisor, use of a franchise system is an alternative business growth strategy, compared to expansion through corporate owned outlets or "chain stores". Adopting a franchise system is a business growth strategy that minimizes the franchisor's capital investment and liability risk. Franchising is rarely an equal partnership, especially in the typical arrangement where the franchisee is an individual, unincorporated partnership or small privately-held corporation, as this ensures the franchisor has substantial legal and/or economic advantages over the franchisee. The usual exception to this rule is when the prospective franchisee is also a powerful corporate entity controlling a highly lucrative location, and/or captive market. For example, a large sports stadium for which prospective franchisors must compete to exclude one another. However, under specific circumstances like transparency, favourable legal conditions, financial means and proper market research, franchising can be a vehicle of success for both a large franchisor and a small franchisee. Thirty-six countries have laws that explicitly regulate franchising, with the majority of all other countries having laws which have a direct or indirect effect on franchising.