A franchise is a business model where an established company (the franchisor) grants a license to an independent business owner (the franchisee) to operate using the franchisor's brand, products, services, and business methods. The franchisee pays fees and royalties to the franchisor in exchange for the right to use the brand name and receive support such as training, marketing, and operational guidance
. There are two main types of franchising:
- Business Format Franchising: The franchisor provides the franchisee not only with the brand and products but also with a complete system including training, site selection, operating manuals, marketing strategies, and quality control
- Product Distribution Franchising: Focuses mainly on supplying the franchisee with products manufactured or supplied by the franchisor, often requiring pre- and post-sale services, as seen in industries like automotive or gasoline
Franchising allows rapid business expansion with lower capital investment and risk for the franchisor, while the franchisee benefits from operating under an established brand with proven business processes, reducing the risk of failure compared to starting a new business from scratch
. In summary, a franchise is a contractual relationship where the franchisor licenses the franchisee to operate a business under its brand and system, with the franchisee paying fees and adhering to the franchisor's standards
