Franchising Basics for Franchisees from The Entrepreneur’s Intellectual Property & Business Handbook

This article is part of a series of book excerpts from The Entrepreneur’s Intellectual Property & Business Handbook, which provides the business, strategy, and legal reference guide for start-ups and small businesses. A franchise is a license or agreement to use the existing business model provided by a company, including its trademarks, recipes and other know-how, its patented products, and processes, in exchange for agreeing to pay the company for the license and to adhere to a set of rules or guidelines on how the business is expected to operate. The company selling the franchise license is the franchisor and the new business owner is the franchisee.A franchise provides a lifestyle business opportunity for the franchisees. The franchise system—owned and operated by the franchisor—may have the combination of exclusivity and relevance to make the franchise a great national brand. Most franchises rely heavily on trademarks for their national presence. Household cleaning franchise opportunities, for example, provide little more than the power of national advertising and some management expertise. The service is a commodity. While highly relevant to its customers, any company can provide the service at rates generally controlled by wage and hour laws. Other franchise systems are based on patented inventions, trade secrets, publicity rights, or other attributes that give the system strong exclusivity. The size and marketing clout of major franchises tend to increase the social relevance of these companies through their marketing influence.But because the exclusivity and relevance are under the control of the franchisor rather than the franchisee, the potential business owner of the franchise must be very diligent to assure that franchisees are treated with respect by the franchise, provided important legal protections under the franchise agreement, and generally demonstrate that the existing franchise owners are successful in their financial return and professional experience