Who is franchisor and franchisee

Even when the relationship is solidified, and the two have been working together successfully, the franchisor still acts as a mentor. A franchisor's parental role is an ongoing commitment. In fact, franchisors generally police their franchises constantly—albeit some more than others—to ensure that they are maintaining the parent company's standards, product quality, and brand values.

Some of the more common types of stores that franchisors can offer franchisees are:. A chain store is one of a series of stores owned by one company; if Starbucks NASDAQ: SBUX , for example, were to franchise some of its stores, then those would be owned by outside investors—not by the original company—and Starbucks would become a franchisor. Generally speaking, a franchise agreement won't protect franchisees if their franchisor declares bankruptcy.

In fact, franchisees are usually obligated to pay royalties and continue operating amid a franchisor bankruptcy. When a franchisor files for bankruptcy, the court will immediately impose a stay of all actions against the franchisor.

In other words, franchisees aren't allowed to take legal action against the franchisor. The following steps in the process are determined by the type of bankruptcy the franchisor chooses to file for. In either case, a franchisor's bankruptcy will likely have a significant impact on its franchisees. Royalties paid to franchisors vary by industry, location, company size, and financial strength. That said, royalties paid to franchisors usually fall in the range of between 4.

Some may think—partly because of the steep cash outlay—that franchisees assume more risk than franchisors. But there are potential disadvantages for franchisors, too. It used to be called Dunkin' Donuts , began operations in and has been franchising since With more than years of franchising experience, Dunkin' is home to two of the world's most recognized franchises: Dunkin' and Baskin-Robbins.

According to Inspire Brands Inc. Most companies that offer franchising opportunities post how-to information for prospective franchisees on their websites. Generally, this is comprehensive, voluminous, and often written in legalese or boilerplate.

In its franchisor role, Dunkin's text speaks to its would-be franchisees clearly and understandably, as the following sample shows. Dunkin' typically does not offer to finance its franchisees. However, from time to time, it may, at its discretion, offer voluntary financing to existing franchisees for specific programs such as the purchase of specialized equipment or accelerated development in specified markets. The franchisor may facilitate certain third-party lending arrangements that may provide financing for qualified franchisees.

The amount of financing and repayment period varies by program, circumstances, and creditworthiness of the applicant. More information, including a complete breakdown of the fee schedule, can be found on the franchisee page of their website. Here are five of the biggest money-making franchises, and the initial investment required:. Here are five lower-cost opportunities with strong brand power, and the initial investment required:. International Franchise Association. Accessed June 4, How To Start A Business.

Top Stocks. Tools for Fundamental Analysis. Your Privacy Rights. Serving the consumer is the role and responsibility of the franchisee. While every franchise is a license, not every license is a franchise under the law.

Sometimes that can be very confusing. In the United States, a franchise is a specific type of licensing arrangement defined by the Federal Trade Commission and also by several states. In the United States a franchise generally exists when:. The definition of a franchise is not uniform in every state.

Some states for example, may also include a marketing plan or community of interest provision in the definition. Put another way, in a franchise a business the franchisor licenses its trade name the brand, such as BrightStar Care or Sport Clips and its operating methods its system of doing business to a person or group operating within a specific territory or location the franchisee , which agrees to operate its business according to the terms of a contract the franchising agreement.

The franchisee is responsible for the day-to-day management of its independently owned business and benefits or risks loss based on his own performance and capabilities. Investing in a franchise or becoming a franchisor can be a great opportunity. But before you select any franchise investment and sign any franchise agreement, do your homework, understand what the franchise system is offering and get the support of a qualified franchise lawyer.

Find out more about franchising by visiting our frequently asked questions page here. Keeping it simple, a license is a right to use a brand. The licensee pays a royalty fee to use a brand, and the licensee can also decide how to market and sell the brand.

The franchise is a legal relationship, specifically defined. It involves trademark logos but that is different than a license for a brand. And although it operates as an independent branch, the franchise must be run following established guidelines. The franchisor is the person who has a successful business model, and is selling the right to use that model to another person or entity. The franchisor has established the initial business system and now must establish the franchise system.

What are the roles and responsibilities of the franchisor? The franchisee definition is the person or entity which purchases the franchise from the franchisor. The franchisee is responsible for operating the business and making a profit. Both sides will be making a significant financial outlay.

Before signing any contract, an investor or franchisor should enlist the services of an attorney or consultant skilled in franchising. Image: Depositphotos. There are certainly pros and cons on deciding to be a franchisor or a franchisee which I think is greatly exhibited on this article.

The question is, what is your asset?