Franchising is the colloquial name of the franchise agreement.This agreement states the fact that an entrepreneur (franchisor, the franchise network organizer, or otherwise providing a network of franchise), provides another, independent entrepreneur (franchisee or otherwise benefiting from the network), permission to conduct business or businesses.
As a rule, the organizer of the network is a company with a reputation in the market that wants to create a network through franchising, extend the distribution of goods or services.
The result is a distribution network, consisting of institutions run by franchisees on their own account and on their own behalf.At the same time they use the name of the franchisor in doing their business.
Franchise agreement is a bilateral and reciprocal.Therefore, both parties are obliged to provide benefits.The agreement must contain provisions specifying how to use common names, how to obtain a uniform design premises network (both interior as well as signs, building shape, color, elevation).Moreover, it should also determine the appearance of means of transport, how to use the know-how and details of the provision by the franchisor of commercial and technical assistance during the contract.
Provision of the franchisor is to provide the franchisee rights to exercise the rights owned by the franchisor.
However, it should be noted that franchisee does not acquire ownership rights to property of franchisor, but only obtains the right to use them.Provision of a network organizer is therefore a collection of industrial property rights and the rights that apply to:
- Trade names
- Shop sign
- Utility and ornamental styles
The franchisee benefits include:
- One-off fee, passed the franchisor when signing a franchise agreement
- The relative charges that are usually spread over monthly installments and include a percentage of turnover or annual income, as well as fees for joint advertising, research and development, etc.
- The obligation to abide the obligations specified in the contract, i.e. the use of acquired rights or royalties, only for a purpose which is specified in the contract.
- Brickley, J. A., & Dark, F. H. (1987). The choice of organizational form the case of franchising. Journal of financial Economics, 18(2), 401-420.