Franchising is a form of relationship between independent companies and/or individuals, within which one party, possessing a developed business management system, a well-known trade name, a brand style, know-how, trade and/or production secrets, knowledge, experience, reputation, and other intangible assets, allows the other party to use this system under agreed conditions (according to the World Intellectual Property Organization Franchising Guide). It should be noted that the composition of subjects in franchising relationships may vary depending on the requirements of the legislation of a specific country.
Franchisor - usually a legal entity, owning property rights to all objects included in the franchise. It tests the success of using objects that make up the franchise in entrepreneurial activities beforehand. After establishing the business's effectiveness, the franchisor temporarily transfers the complex rights to these objects to other persons.
Franchisee - a person who temporarily acquires a complex of rights included in the franchise to organize their own entrepreneurial activity with its help.
Franchise - directly a complex of rights, including the right to use the trade name, trademark, confidential commercial information, business reputation, know-how, operational system, which the franchisor transfers to the franchisee for the purpose of organizing and conducting the latter's entrepreneurial activity.
Initial fee - a one-time payment for the franchise. As a rule, it is charged in a fixed amount and paid to the franchisor immediately after the conclusion of the franchise agreement.
Royalty - payment for the franchise. As a rule, it is paid periodically - once a month (less often - once a quarter or year). It is established in the form of a percentage of the franchisee's revenue or a fixed amount. It is considered that royalty in the form of a percentage of revenue increases the franchisor's interest in the success of their franchisee.
Marketing (advertising) fee - payment for the franchise. It is established in a fixed amount or as a percentage of the franchisee's revenue. It can be transferred to the franchisor, who forms a fund from such payments aimed at centralized brand promotion and development. The franchise agreement may also stipulate the franchisee's obligation to independently use such contributions for advertising and brand promotion within the franchisee's territory.
Single-unit franchise (standard franchise) - a franchise that gives the franchisee the right to open one franchised point. The most common option.
Master franchise - a franchise that gives the franchisee the exclusive right to develop a network in a certain territory (city, region, country, several countries). As a rule, it includes the obligation of the master franchisee to open a certain number of points within a certain period. Typically, it includes the right of the franchisee to open both their own franchise points and sub-franchise points.
Sub-franchising - the right of the franchisee to transfer to other persons (sub-franchisees) a complex of rights included in the franchise, on the terms established by the franchisor, for a period not exceeding the term of the agreement between the franchisor and the franchisee. In fact, in such relationships, the franchisee becomes the franchisor for their sub-franchisees.
