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A franchise is a business
system in which one business (usually a bigger and established one)
gives another business (usually a smaller one) the rights to sell its
products and to operate under its brand name.
The bigger company
that gives out its products to be sold and its trademarks to be used is
referred to as the franchisor, whereas the smaller company is called a
franchisee. In addition to selling the products of the franchisor, the
franchisee usually also has to pay the franchiser some type of royalty
fee for using the franchiser's brand. The franchisee usually
has to operate under guidelines given by the franchisor, which a
franchisor gives to all franchisees working under it to ensure
consistency among the franchises and to protect the brand name.
The franchisees, on the other hand, get the
opportunity to benefit from the already established brand name and
goodwill of the franchisor which is a considerable advantage
considering that these are things that are very hard for a new business
to build from scratch. From the franchisor guidelines, which a
franchisee is expected to operate under, the franchisee also gets to
benefit from tried and proven business systems that might have taken
the franchisor years to develop and which could take the franchisee a
considerable period of time to build up on its own. The customers, on
the other hand, have services and goods brought nearer to them.