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About Franchise Franchise according
to the dictionary means “Granting authorization to someone to sell or distribute
a company's goods or services in a certain area or certain places”. Franchise is a
license granted by a company or firm on certain terms and conditions to an
individual or firm to operate a retail outlet in a specified area or place.
The company or firm which grants the license is called as franchisor, where
as, the individual who accepts the terms and conditions to operate a retail
outlet is called as franchisee. Here the franchisee agrees to use the
franchisors brand name, products, services, promotions, selling methods, add
display and distributions on certain terms and conditions. The franchisee
pays a fee to the franchisor for the license to sell its products, services
or goods. This type agreement
helps both parties, the franchisor gets new area to establish business where
as the franchisee will get already developed brand products and having no
guess work about what to do, because all development and decisions are made
by franchisor and everything is laid out, step by step, with nothing missing
or left to chance and it all works with precision. The Legal Aspects
of Franchising In legal terms
franchise is a contract. The franchisee is usually granted an exclusive
territory in which he or she is the only distributor of the particular products
or services in a specified place. The franchisor is obligated to assist the
franchisee through advertising, promotion, research and development, quantity
purchasing, training and education etc. In 1979 the United
States legislature had enacted the laws to protect prospective franchisees
from being deceived by the falsehoods of franchisors. The franchisor has to
disclose all financial details such as profit, operating cost, recurring
expenses and five year actual sales statement and these laws are known as
financial discloser law. A franchisor also has
to disclose the background of the company including the business experience
of its high level executives and whether any of its executives, within the last
seven years, have been convicted of a felony or involved in litigation
franchise business fraud, or have been involved in any proceedings for
bankruptcy. In addition to this disclosure factual description of the
franchise and statement of the total funds to be paid such as initial
franchise fees, deposits, down payments, prepaid rent, and inventory
purchases is mandatory. Conditions must also
be clear on recurring costs such as royalties, rent, advertising fees etc.
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