fran·chise (frÄn'chÄ«z')
n.
A privilege or right officially granted a person or a group by a government, especially:
The constitutional or statutory right to vote.
The establishment of a corporation's existence.
The granting of certain rights and powers to a corporation.
Legal immunity from servitude, certain burdens, or other restrictions.
Authorization granted to someone to sell or distribute a company's goods or services in a certain area.
A business or group of businesses established or operated under such authorization.
A brand name under which a series of products is released.
The territory or limits within which immunity, a privilege, or a right may be exercised.
A professional sports team.
franchise
1. License granted by a company (the franchisor) to an individual or firm (the franchisee) to operate a retail, food, or drug outlet where the franchisee agrees to use the franchisor's name; products; services; promotions; selling, distribution, and display methods; and other company support. McDonald's, Midas, and Holiday Inn are all examples of franchise operations.
2. Right to market a company's goods or services in a specific territory, which right has been granted by the company to an individual, group of individuals, marketing group, retailer, or wholesaler. See also brand franchise.
3. Specific territory or outlet involved in such a right.
4. Right of an advertiser to exercise an option to sponsor a television or radio show, as well as the granting of such a right by the broadcast medium (as "to exercise a franchise" or "to grant a franchise").
5. Right granted by a local or state government to a cable television operator to offer cable television service in a community.
Franchise
An arrangement between a franchisor and franchisee through which the franchisee uses the company name of the franchisor and is provided specified business services in exchange for a franchise fee. The fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business.Example: In real estate brokerage, locally owned firms may operate as franchises of such national companies as Century 21, RE/MAX, and Red Carpet. The franchisor advertises the name and logo of the company, offers training for salespersons, and offers or provides other services to the franchisee.
franchise, in government, a right specifically conferred on a group or individual by a government, especially the privilege conferred by a municipality on a corporation of operating public utilities, such as electricity, telephone, and bus services. Franchises may not be revoked without the consent of the grantee unless so stipulated in the contract. They may, however, be forfeited by the grantee's violation of terms, and the government may take back granted rights by eminent domain proceedings with tender of just compensation. Franchise provisions usually include tenure; compensation to the grantor; the services, rates, and extensions; labor and strike regulations; capitalization; and reversion to the grantor.
The term franchise also refers to a type of business in which a group or individual receives a license from a corporation to conduct a commercial enterprise. Corporate franchises enable a franchisee to market a well-known product or service in return for an initial fee and a percentage of gross receipts. The franchiser usually provides assistance with merchandising and advertising. Major franchise networks, which have grown rapidly in the United States since the 1960s, include fast-food restaurants, gasoline stations, motels, automobile dealerships, and real-estate agencies, and the system has expanded into many other fields.
In politics, the franchise is the right conferred on an individual to vote. In the United States, the states, with some restrictions by the U.S. Constitution, govern the qualifications of voters. By the Fourteenth and Fifteenth amendments, states were forbidden to deny suffrage to male residents over 21 years of age “on account of race, color, or previous condition of servitude.” The Nineteenth Amendment conferred suffrage upon women, and the Twenty-sixth Amendment lowered the voting age to 18
Related Topics
privilege
cable television
license
trade name
suffrage
consideration
charter
grantee
lease
police power
Franchise
A special privilege to do certain things that is conferred by government on an individual or a corporation and which does not belong to citizens generally of common right, e.g., a right granted to offer cable television service.
A privilege granted or sold, such as to use a name or to sell products or services. In its simplest terms, a franchise is a license from the owner of a trademark or trade name permitting another to sell a product or service under that name or mark. More broadly stated, a franchise has evolved into an elaborate agreement under which the franchisee undertakes to conduct a business or sell a product or service in accordance with methods and procedures prescribed by the franchisor, and the franchisor undertakes to assist the franchisee through advertising, promotion, and other advisory services.
The right of suffrage; the right or privilege of voting in public elections. Such right is guaranteed by the Fifteenth, Nineteenth, and Twenty-fourth Amendments to the U.S. Constitution.
As granted by a professional sports association, franchise is a privilege to field a team in a given geographic area under the auspices of the league that issues it. It is merely an incorporeal right.
Government Franchises
The consideration to be given by a person or corporation in order to receive a franchise from the government can be an agreement to pay money, to bear some burden, or to perform a public duty. The primary objective of all grants of franchises is to benefit the public; the rights or interests of the grantee, the franchisee, are secondary. A corporation is a franchise, and the various powers conferred on it are also franchises, such as the power of an insurance corporation to issue an insurance policy. Various types of business—such as water companies, gas and electric companies, bridge and tunnel authorities, taxi companies, along with all types of corporations—operate under franchises.
The charter of a corporation is also called its general franchise. A franchise tax is a tax imposed by the state on the right and privilege of conducting business as a corporation for the purposes for which it was created and in the conditions that surround it.
Power to Grant
The power to grant franchises is vested in the legislative department of the government, subject to limitations imposed by the state constitution. A franchise can be derived indirectly from the state through the agency that has been duly designated for that purpose, such as the local transportation agency that can grant a franchise for bus routes. Franchises are usually conferred on corporations, but natural persons can also acquire them. The grant of a franchise frequently contains express conditions and stipulations that the grantee, or holder, of the franchise must perform.
Not every privilege granted by a governmental authority is a franchise. A franchise differs from a license, which is merely a personal privilege or temporary permission to do something; it can be revoked and can be derived from a source other than the legislature or state agencies. A franchise differs from a lease, which is a contract for the possession and profits of property in exchange for the payment of rent.
Regulation
Once a franchise is granted, its exercise is usually subject to regulation by the state or some duly authorized body. In the exercise of police power—which is the authority of the state to legislate to protect the health, safety, welfare, and morals of its citizens—local authorities or the political subdivisions of the state can regulate the grant or exercise of franchises.
Right to Compete
While a franchise can be exclusive, exclusiveness is not a necessary element of it. Nonexclusive franchises—in- cluding those to function or operate as a public utility—do not include the right to be free of competition. The grant of such a franchise does not prevent the grant of a similar one to another, or lawful competition on the part of public authorities. The holder of a nonexclusive franchise is legally entitled to be free from the competition of one not having a valid franchise to compete. One can institute a proceeding for an injunction—a court order that commands or prohibits a certain act—and monetary damages for the unlawful invasion of the franchise. Although the franchise is not exclusive, one is entitled to protection against competition from persons operating without a franchise.
Duration
The legislature can prescribe the duration of a franchise. The powers of local authorities or political subdivisions of the state depend upon the statute that confers the power to make grants and upon any constitutional limitation.
A franchise can be terminated by the mutual agreement of the state that is the franchisor, and the grantee or the franchisee. It can be lost by abandonment, such as when a corporation dissolves because of its fiscal problems. A mere change in the government organization of a political subdivision of a state does not divest franchise rights that have been previously acquired with the consent of local authorities. A franchise cannot be revoked arbitrarily unless that power has been reserved by the legislature or proper agency.
Forfeiture
A franchise can be subject to forfeiture due to nonuse. Misuse or failure to provide adequate services under the franchise can also result in its loss. The remedy for nonuse or misuse lies with the state. Persons other than the state or public authorities cannot challenge the validity of the exercise of a franchise unless they can demonstrate that they have a peculiar interest in the matter distinct from that of the general public.
Invasion of the Franchise
A person or corporation holding a valid franchise can obtain an injunction to prevent the unlawful invasion of the franchise rights and can sue for monetary damages if there has been financial loss as a result of the infringement.
Transfer of Franchises
Subject to applicable constitutional or statutory limitation, franchises can be sold or transferred. Where the franchises involve public service, they cannot be sold or transferred unless there is authorization by the state. The person or corporation purchasing the franchise in an authorized sale takes it subject to its restrictions.
Private Franchises
Certain written contractual agreements are sometimes loosely referred to as franchises, although they lack the essential elements in that they are not conferred by any sovereignty. The franchise system or method of operation, which is of comparatively recent development, has had a phenomenal growth in particular consumer product industries, such as automobile sales, fast foods, and ice cream. The use of a franchise in this manner has enabled individuals with minimal capital to invest to become successful members of the business community.
Under the most common method of operation, the cornerstone of a franchise system must be a trademark or trade name of a product. A franchise is a license from an owner of a trademark or trade name permitting another to sell a product or service under the name or mark. A franchisee agrees to pay a fee to the franchisor in exchange for permission to operate a business or sell a product or service according to the methods and procedures prescribed by the franchisor as well as under the trade name or trademark of the franchisor. The franchisee is usually granted an exclusive territory in which he or she is the only distributor of the particular goods or services in that area. The franchisor is usually obligated by contract to assist the franchisee through advertising, promotion, research and development, quantity purchasing, training and education, and other specialized management resources.
Before 1979 fewer than twenty state legislatures had enacted laws to protect prospective franchisees from being deceived by the falsehoods of dishonest franchisors. These laws, known as financial disclosure laws, mandated that anyone offering franchises for sale in the state had to disclose material facts—such as the true costs of operating a franchise, any recurring expenses, and substantiated reports of profit earned—that would be instrumental in the making of an informed decision to purchase a franchise.
In states that did not have such legislation, the unsophisticated investor was at the mercy of the franchisor's statements. A victimized franchisee could sue a franchisor for breach of contract, but this was an expensive proposition for someone who typically had invested virtually all of his or her financial resources in an unprofitable franchise. Franchisors confronted with numerous lawsuits often would declare bankruptcy so that the franchisees had little possibility of recouping any of their investments.
The Federal Trade Commission received numerous complaints about inequitable and dishonest practices in the sale of such franchises. In late 1978 it issued regulations, effective October 21, 1979, that require franchisors and their representatives to disclose material facts necessary to make an informed decision about the proposed purchase of a franchise and that establish certain practices to be observed in the franchisor-franchisee relationship.
A franchisor must disclose the background of the company—including the business experience of its high-level executives—for the previous five years; and whether any of its executives, within the last seven years, have been convicted of a felony, have pleaded nolo contendere to fraud, have been held liable in a civil action for fraud, are subject to any currently effective court order or administrative agency ruling concerning the franchise business or fraud, or have been involved in any proceedings for bankruptcy or corporate reorganization for insolvency during the previous seven years.
In addition, there must be a factual description of the franchise as well as an unequivocal statement of the total funds to be paid, such as initial franchise fees, deposits, down payments, prepaid rent on the location, and equipment and inventory purchases. The conditions and time limits to obtain a refund, as well as its amount, must be clear as well as the amount of recurring costs, such as royalties, rents, advertising fees, and sign rental fees. Any restrictions imposed—such as on the amount of goods or services to be sold, the types of customers with which the franchisee can deal—the geographical area, and whether the franchisee is entitled to protection of his or her territory by the franchisor must be discussed. The duration of the franchise, in addition to reasons why the franchise can be terminated or the franchisee's license not renewed when it expires, also must be explained. The number of franchises voluntarily terminated or terminated by the franchisor must be reported. The franchisor must disclose the number of franchises that were operating at the end of the previous year, as well as the number of company-owned outlets. The franchisee must also be supplied with the names, addresses, and telephone numbers of the franchisees of the ten outlets nearest the prospective franchisee's location, so that the prospective franchisee can contact them to obtain a realistic perspective of the daily operations of a franchise.
If the franchisor makes any claims about the actual or projected sales of its franchises or their actual or potential profits, facts must be presented to substantiate such statements.
All of these facts—embodied in an accurately, clearly, and concisely written document—must be given to the prospective franchisee at the first personal meeting or at least ten days before any contractual relationship is entered or deposit made, whichever date is first. The purpose of this disclosure statement is to provide the potential investor with a realistic view of the business venture upon which he or she is about to embark. Failure to comply with the FTC regulation could result in a fine of up to $10,000 a day for each violation.
Some states have also enacted laws that prohibit a franchisor from terminating a franchise without good cause, which usually means that the franchisee has breached the contract. In such a case, the franchisor is entitled to reacquire the outlet—usually by repurchasing the franchisee's assets, such as inventory and equipment.
In states without "good cause" laws, franchisees claim that they are being victimized by franchisors who want to reclaim outlets that have been proved to be highly profitable. They allege that the franchisor imposes impossible or ridiculous demands that cannot be met to harass the franchisee into selling the store back to the franchisor at a fraction of its value. Com- pany-owned outlets yield a greater profit to the franchisor than the royalty payments received from the franchisee. Other franchisees claim that their licenses have been revoked or not renewed upon expiration because they complained to various state and federal agencies of the ways in which the franchisors operate. Such controversies usually are resolved in the courtroom.
Politics Library > Government > Politics franchise
In politics, the right to vote. The Constitution left the determination of the qualifications of voters to the states. In the late eighteenth and early nineteenth century, states usually restricted the franchise to white men who owned specified amounts of property. Gradually, poll taxes were substituted for property requirements. Before the Civil War, the voting rights of blacks were severely restricted, but the Fifteenth Amendment to the Constitution, declared ratified in 1870, prohibited states from abridging the right to vote on the basis of race. Nevertheless, southern states used a variety of legal ploys to restrict black voting until passage of the Voting Rights Act of 1965. Women were not guaranteed the right to vote in federal elections until ratification of the Nineteenth Amendment in 1920. In 1971 the Twenty-sixth Amendment lowered the voting age from twenty-one to eighteen. (See suffrage and suffragette.)
Losing the right to vote, called disfranchisement, is most commonly caused by failing to reregister, a procedure that is required every time a person changes residence.
Economics Library > Business > Economics franchise
In business, a relationship between a manufacturer and a retailer in which the manufacturer provides the product, sales techniques, and other kinds of managerial assistance, and the retailer promises to market the manufacturer's product rather than that of competitors. For example, most automobile dealerships are franchises. The vast majority of fast food chains are also run on the franchise principle, with the retailer paying to use the brand name.
Word Tutor Library > Words > Word Tutor franchise
IN BRIEF: A special right or permission given by a government. Also: The right given to a dealer to sell the products of a certain company.
The business owner wanted to sell a franchise of her own business to someone interested in selling the same products in another city.
WordNet Library > Reference > WordNet Note: click on a word meaning below to see its connections and related words.
The noun franchise has 3 meanings:
Meaning #1: an authorization to sell a company's goods or services in a particular place
Meaning #2: a business established or operated under an authorization to sell or distribute a company's goods or services in a particular area
Synonym: dealership
Meaning #3: a statutory right or privilege granted to a person or group by a government (especially the right to vote)
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The verb franchise has one meaning:
Meaning #1: grant a franchise to; in commerce
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Wikipedia Library > Reference > Wikipedia franchising
Franchising (from the French for honesty or freedom[1]) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor, and may indeed be required by the franchisor, which generally requires audited books, and may subject the franchisee or the outlet to periodic and surprise spot checks. Failure of such tests typically involve non-renewal or cancellation of franchise rights.
A business operated under a franchise arrangement is often called a chain store, franchise outlet, or simply franchise.
According to Financial Times, if sales by US franchise businesses were translated into national product, they would qualify as the 7th largest economy in the world.[citation needed]
Overview
The term "franchising" is used to describe business systems which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business. This is called product franchising or trade name franchising.
A franchise agreement will usually specify the given territory the franchisee retains exclusive control over (the area protection), as well as the extent to which the franchisee will be supported by the franchisor (e.g. training and marketing campaigns).
Advantages
As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting.
After their brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents, and can earn profits commensurate with their contribution to those societies. Additionally, the franchisor may choose to leverage the franchise to build a distribution network.
Franchisers often offer franchisees significant training, which is not available for free to individuals starting up their own business.
For some consumers, having franchises offer a consistent product or service makes life easier. They know what to expect when entering a franchised establishment. See franchise validation.
Disadvantages
For franchisees, the main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, and marketing, the franchisee is required to follow the system and get approval for changes from the franchisor. For these reasons, franchisees and entrepreneurs are very different.
It can be expensive. Because of standards set by the franchiser, the franchisee often has no choice as to signage, shop fitting, uniforms etc. and may not be allowed to source less expensive alternatives. Added to that is the franchise fee and ongoing royalties and advertising contributions. The franchisee may also be contractually bound to spend money on upgrading or alterations as demanded by the franchiser from time to time.
In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on "formula businesses."[2]
Another problem is that the franchisor/franchisee relationship can easily cause conflict if either side is incompetent (or not acting in good faith). For example, an incompetent franchisee can easily damage the public's goodwill towards the franchisor's brand by providing inferior goods and services, and an incompetent franchisor can destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits.
Due to the disadvantages such as those listed above, the average success rate of franchisee in the United States in the early 2000's is only around 25%, and the average income of these suvivors is only around $30,000.[citation needed]
Legal aspects
In the United States, franchising falls under the jurisdiction of a number of state and federal laws. Franchisors are required by the Federal Trade Commission to have a Uniform Franchise Offering Circular "UFOC" to disclose potential franchisees about their purchase. This disclosure must take place 10 business days prior to solicitation (franchisor agrees to offer the propsective franchisee a license). Each state may require the UFOC to contain specific requirements. This means that many franchisors have a unique UFOC for each state or sometimes are able to include all state specific requirements into one document.
There is no federal registry of franchising or any federal filing requirements for information, rather, states are the primary collectors of data on franchising companies, and enforce laws and regulations regarding their spread.
In Russia, under ch. 54 of the Civil Code (passed 1996), franchise agreements are invalid unless written and registered, and franchisors cannot set standards or limits on the prices of the franchisee’s goods. Enforcement of laws and resolution of contractual disputes is a problem: Dunkin' Donuts chose to terminate its contract with Russian franchisees that were selling vodka and meat patties contrary to their contracts, rather than pursue legal remedies.[citation needed]
Because litigation is expensive, the majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees. Since 1980, the U.S. Supreme Court has dealt with cases involving direct franchisor/franchisee conflicts at least four times, and three of those cases involved a franchisee who was resisting the franchisor's motion to compel arbitration. Two of the latter cases involved large, well-known restaurant chains (Burger King and Subway); the third involved Southland Corporation, the parent of 7-Eleven.
History
Franchising dates back to at least the 1850s; Isaac Singer, who made improvements to an existing model of a sewing machine, wanted to increase the distribution of his sewing machines. His effort, though unsuccessful in the long run, was among the first franchising efforts in the U.S. A slightly later, yet much more successful, example of franchising was John S. Pemberton's franchising of Coca-Cola.[3] Early American examples include the telegraph system, which was operated by various railroad companies but controlled by Western Union[4], and exclusive agreements between automobile manufacturers and operators of local dealerships[5].
Modern franchising came to prominence with the rise of franchise-based food service establishments. This trend started as early as 1919 with quick service restaurants such as A&W Root Beer[6]. In 1935, Howard Deering Johnson teamed up with Reginald Sprague to establish the first modern restaurant franchise [7] [8]. The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee.
The growth in franchises picked up steam in the 1930s when such chains as Howard Johnson's started franchising motels[9]. The 1950s saw a boom of franchise chains in conjunction with the development of America's Interstate Highway System [10]. Fast food restaurants, diners and motel chains exploded. In regards to contemporary franchise chains, McDonalds is arguably the most successful worldwide with more restaurant units than any other franchise network.
Social franchising
In recent years, the idea of franchising has been picked up by the social enterprise sector, who hope to simplify and expedite the process of setting up new businesses. A number of business ideas, such as soap making, wholefood retailing, aquarium maintenance and hotel operation, have been identified as suitable for adoption by social firms employing disabled and disadvantaged people.
The most successful example is probably the CAP Märkte, a steadily growing chain of some 40 neighborhood supermarkets in Germany.
Other examples are the St. Mary's Place hotel in Edinburgh and the Hotel Tritone in Trieste.
References
^ Random House Webster's Unabridged Dictionary, 2nd Edition
^ New Rules Website
^ http://www.referenceforbusiness.com/encyclopedia/For-Gol/Franchising.html
^ http://invention.smithsonian.org/resources/fa_wu_index.aspx#series2
^ http://findarticles.com/p/articles/mi_m0FJN/is_n8_v30/ai_18728418
^ http://www.aw-drivein.com/About_Us.cfm
^ Allen, R. (1998). Foodservice’s theory of evolution: Survival of the fittest. Nation’s Restaurant News, 32(4), pp. 14 -17.
^ Howard, T. (1996). Howard Johnson: Initiator of franchised restaurants. Nation’s Restaurant News, 30 (2), pp. 85-86.
^ http://www.wdfi.org/fi/securities/franchise/history.htm
^ http://www.pubs.asce.org/ceonline/ceonline06/0606feat.html
External links
United States Federal Trade Commission - Disclosure requirements and prohibitions concerning franchising and business opportunity ventures.
if my info is useful then do RATE ME
2007-03-14 08:11:09
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