Glossary

Franchising –  A management method in which the franchisor offers an information or company (franchisee) the right to market its products or services. The franchisee undertakes to manage the business according to rules and regulations determined by the franchisor. In return for this undertaking, the franchisee is entitled to use the franchisor’s trademark, reputation, products, services and marketing and support systems. Besides a one-time investment in setting up the business, franchisees remit monthly royalties to the franchisor, constituting a certain percentage of their sales volume. This transaction is very similar to rental, as the franchisee never becomes the owner of the brand but only obtains the right to use it, so long as he pays royalties to the franchisor. The franchising portfolio (including regulations) enables the franchisee to conduct the business successfully even without previous experience or knowhow in the field.

Franchisor – A company offering franchises to use its trademark, knowhow, reputation and business operation systems.

Franchisee – A person or company that pays royalties for use of the trademark, knowhow, reputation and management systems of a franchising company, from which it may receive guidance and assistance in setting up a business. Franchisees may also be required to participate in the franchisor’s nationwide advertising fund.

Franchise – The franchise portfolio, often simply called referred to as a “franchise,” is a collection of several important documents on which the franchisor–franchisee engagement is based, including the franchising agreement or license, regulations, etc.

Almost any business can be franchised. The International Franchising Association (IFA) has defined 75 distinct types of businesses that now use the franchising system, including fast food, bookkeeping, auto repair, bookshops, construction, hotels, laundries, fashion outlets, vehicle rental, gas stations, post offices, restaurants, real estate, babysitting and more.