Question

What is meant by ‘franchising’? Explain the main components of a franchise agreement.

Hint:

Franchising = Using a proven business model and brand for a fee, with rights and duties clearly defined in the franchise agreement.

Answer 1

Meaning of Franchising:
Franchising is a business arrangement in which one party (the franchisor) grants another party (the franchisee) the right to operate a business using the franchisor’s brand name, products, and business model for a specified period, in return for a fee or royalty.

Main Components of a Franchise Agreement:

1. Trademark and Brand Usage Rights:
Defines how the franchisee can use the franchisor’s brand name, logo, and trademarks.

2. Territorial Rights:
Specifies the geographical area in which the franchisee can operate exclusively.

3. Duration of Agreement:
States the length of time for which the franchise rights are granted and conditions for renewal.

4. Fees and Royalties:
Details the initial franchise fee, ongoing royalties, and other payments the franchisee must make.

5. Training and Support:
Outlines the training, marketing, and operational support provided by the franchisor.

6. Obligations and Restrictions:
Specifies duties and limitations on the franchisee regarding product quality, pricing, and business operations.