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Forming Your Business: Franchises

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A franchise is an arrangement in which the owner of a trademark, a trade name, or a copyright licenses others to use the trademark, trade name, or copyright in the selling of goods or services. It is important to know and understand some other key terms for a franchise business. They are 1) Franchisee and 2) Franchisor.
A franchisor is the seller of the franchise and the franchisee is the buyer of the franchise. A major advantage of buying a franchise is that the franchise is already set up. The buyer takes advantage of already established regional or national organzational name recognition and reputation as well as operations. Best of all, the buyer can operate as an independent business person.
There are several types of franchises. Among them include distributorship, chain-style business operation, and manufacturing arrangement.
There are laws and regulations that govern franchises. For instance, a franchise is governed by contract law. The federal government is involved in applying some laws to franchises. Types of regulations include industry-specific standards, the franchise rule, and even state laws that govern franchises operating in their states. The regulations offer protections against such areas as bad faith practices to disclosure of information regarding costs of operations, expenses, and profits (although franchisors don’t have to disclose any promises of expected earnings). I would suggest that potential franchise owners get proof of any disclosures for the sole purpose of going into the business with their eyes wide open.
Another important aspect of being in a franchise business is the contract between the franchisor and the franchisee. The contract should spell out, completely, what the expectations are between the franchisor and the franchisee. Bare bones issues that should be covered include terms and conditions, whether the premises on which the franchise operates should be bought or leased, the territory served, organizational form and capital structure, operational standards, training requirements, quality control, pricing arrangements, and termination requirements.
This information has been shared from the textbook The Legal Environment of Business by Cross and Miller. Any further or more detailed information about any legal forms of business can also be found in the text. The next subject on forms of business will be Partnerships.



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