Question

3. A) Explain the following statement from the text. "A franchise should be thought of as a method of conducting business... rather than a business entity". (The Legal Environment of Business A MANAGERIAL APPROACH: Theory to Practice) Third Edition

B) Name 5 of the usual terms and conditions that a typical franchise agreement would address.

Answer 1

Ans 3 A)=A prevailing entity that desires to distribute its goods to a broader market minus the overhead expenditures of retail space, equipment,& personnel can do so thru the utilization of a franchise. A franchise should be deemed as a methodology of conducting business which focuses on a contractual relation rather than as business entity.

‘Adhere to the system’ is the mantra in franchising & is vital for a franchisee's success. Franchisees believe in the franchisor's work model deeming that if they follow it as is they’ll succeed & be profitable. Smart franchisors are open to suggestions always from their franchisees for modification (as well as local / regional variations), however, any franchisee deviating from the ‘system’ without the franchisor’s approval risks violating the terms of the franchise contract, which can lead to revocation of the franchisee's right to conduct business with the franchisor's name. Franchisees also must consent to keep the franchisor's proprietary model & trade secrets confidential, plus sign some kind of noncompete pact.

A franchise comprises of the franchisor, a corporate entity having a established track record of success, selling to a franchisee the right to conduct the business & utilize the corporate trade secrets, products , trademarks etc.
The franchisor helps out the franchisee with funding, supplies, training, & other facets of handling a successful operation.

Ans b)=Franchise contracts-

1.the term (i.e. time limit) of the contract
2.franchise fees, payment stipulations, & ongoing investment / purchasing requirements
3. territorial rights which normally provide the franchisee an exclusive geographical region
4.commitment from the franchisor for ongoing managerial support , training & advertising
5.commitment from the frachisee to follow operational protocols
6. royalties & other fees which the franchisee has to pay
7. franchisee termination / cancellation policies