Franchising 101: Franchise Definition

The franchise definition consists of the sale by a franchisor to the franchisee of the right to use the franchisor’s name, service mark, or trademark.

In essence, franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system:

• The Franchisor: The business that grants the license to a third party for the conducting of a transacting business under their marks.
• The Franchisee: The person or entity who buys the right to use the franchisor’s system and brand.

Key Components of a Franchise

For a business arrangement to be legally considered a franchise, it generally must involve three elements: the use of a trademark, the exercise of significant control or assistance, and the payment of a required fee.