Franchising is a method of distributing products or services involving a franchisor, who establishes the trademark associated with the products or services and grants to a franchisee, the right for, a specified duration and maybe within a specific geographical area, to distribute the franchisor's products or services. The franchisee is required to make a payment or continuing payments to the franchisor in connection with the rights granted to the franchisee by the franchisor.
There are two different franchising formats:
- The most commonly thought of franchise is the business format franchise.Generally in business format franchises, franchisees distribute the franchisor's products or services in accordance with the franchisor's mandatory business system and using the franchisor's trademark.Examples of business format franchises are: McDonald's, Tim Hortons and Subway.
- The other franchise format is, product distribution format.Generally in product distribution format franchises, the franchisor grants the franchisee the right to distribute products or services and the franchisor provides location assistance to the franchisee but the franchisee determines how to operate its business.That is, the franchisee has significantly more freedom and responsibility in operating its business with product distribution format franchises.Examples of product distribution format franchisees are: automobile and farm equipment dealerships and gas stations.
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