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Most Common Franchise Terminologies Explained!!

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Franchise is an authorization granted by a company (Franchisor) to an individual or group of individuals or a legal entity (Franchisee) that entitles the later to carry out specified activities on the contract using the business expertise of the franchisor and market its products and services under the same brand name, enabling franchisee to run the operation in a specific location and share the returns arising there from.

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Most Common Franchise Terminologies Explained!!

  1. 1. It is a method or model of business wherein, there exists a continuing relationship in which a franchisor provides a licensed privilege to the franchisee to do business and offer assistance in setting up, organizing, training, marketing and managing in return for a monetary consideration. Franchising is a form of business by which the franchisor of a product, service or method obtains distribution through affiliated franchisees. Franchise is an authorization granted by a company (Franchisor) to an individual or group of individuals or a legal entity (Franchisee) that entitles the later to carry out specified activities on the contract using the business expertise of the franchisor and market its products and services under the same brand name, enabling franchisee to run the operation in a specific location and share the returns arising there from.
  2. 2. Franchisor is the company that owns the business, the brand and all the associated trademarks, trade names and grants franchise to the franchisees. Franchisee is an individual or a group of individuals or an entity that buys into a franchise and receives entitlement to business from a franchisor.
  3. 3. It is a detailed document that reveals all the facts and all the essential information regarding the franchisor and the franchise contract. This must have all those details included that are essential for the potential franchisee to decide on the investment. Further franchise governing body of the region will have also recognized the essential information that has to be included in the document. The information may include  Trademarks, Copyrights, Patents, Trade- names And Other Proprietary Information  Restriction on goods and services and on sources of products  Financial statements and other information of recent past  Details of existing franchisees  All the information as per the law  Details of Franchisor, associated ventures and affiliates  Litigation history  Details of bankruptcy filed in the past or present  Franchise fee, other fees and expenses  Estimated initial investment  Obligations of either parties to the agreement
  4. 4. A Franchise is always restricted to operate with in a predefined territory in the specified location so as to ensure that the competition between the franchises under the same franchisor does not exist. As complimentary to this restriction each franchise enjoys the benefit of ‘protected territory’, within which the franchisor will agree not to open another franchise. A master franchise has entitlement in addition to what a franchise is offered. Many a times a franchisor grants rights of franchising to franchisees. When franchisees buy into a master franchise, they are also entitled to open their outlets or sub franchises and gain right over a bigger territory for this purpose and in such cases franchisee becomes the master franchisor for the sub franchises.
  5. 5. A fixed payment or percentage of revenue that is paid to the franchisor for continued use of resources and intangible assets such as good will of the franchisor. It is paid periodically - once or more number of time depending on predetermined terms. The above glossary is pertinent only to franchise industry. For more comprehensive understanding of franchise industry Indian Institute of Hardware and Technology (IIHT) is creating resources for the information seekers. More details on each of the above stated terms and their implications at IIHT Technologies are available on http://www.youtube.com/IIHTTECH. IIHT also develops well researched thesis on various franchising aspects. For information on IIHT franchises please visit IIHT Technologies website.
  6. 6. Corporate Headquarters #15,Sri Lakshmi Complex, 4th Floor, St. Marks Road, Bangalore - 560 001. India Tel: 91 80 6160 4545 e-mail: franchise@iihttechnologies.com web: www.iihttechnologies.com/

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