INTRO TO BUS. MOORE 04-22-02FRANCHISING:A franchise, by definition is a legal agreement that allows one organization with a product, idea, name or trademark to grant certain rights and information about operating a business to an independent business owner. In return, the business owner (franchisee) pays a fee and royalties to the owner. This one-time fee paid by the franchisee to the franchisor is referred to as a franchise fee. The fee pays for the business concept, rights to use trademarks, management assistance and other services from the franchisor. This fee gives the franchisee the right to open and operate a business using the franchisor’s business ideas and products. A royalty fee is a continuous fee paid by the franchisee to the franchisor. The royalty fee is usually a percentage of the gross revenue earned by the franchisee. The Federal Trade Commission (FTC) is authorized by the United States Congress to regulate the franchise business.(1) The Federal Trade Commission oversees the implementation of the Franchise Trade Rule, which requires that franchisors disclose all pertinent information to potential buyers of a franchise, and monitors the activities of franchisors. There are four basic types of franchises used by businesses in the United States. Product Franchise: Manufacturers use the product franchise to govern how a retailer distributes their product.(2) The manufacturer grants a storeowner the authority to distribute goods by the manufacturer and allows the owner to use the name and trademark owned by the manufacturer. The storeowner must pay a fee or purchase a minimum inventory of stock in return for these rights. An example of this type of franchise is a tire store. Manufacturing Franchise: These types of franchises provide an organization with the right to manufacture a product and sell it to the public, using the franchisor’s name and trademark.(3) This type of franchise is found most often i...
