A franchisor licenses a franchisee to make and sell its products or distribute its services to the public from a retail outlet serving an exclusive territory. area franchise A franchisor authorizes a franchisee to negotiate and sell franchises on its behalf in designated areas. The area franchisee is called a subfranchisor.
Full Answer
What is the difference between a franchisor and subfranchisor?
Like the franchisor, the subfranchisor signs a subfranchising agreement with the franchisees (when a franchise is sold) in the area. Technically, the subfranchisor takes over the role of the franchisor in certain geographic regions.
What is subfranchising and how does it work?
The subfranchisor can open their own units in their region but can also license other franchisees in their region in the time allotted to them in the agreement. One must make sure whether subfranchising is being offered by certain franchises, since not every franchise system offers such agreements.
What is the meaning of distributorship?
Definition of distributorship : a franchise granted by a manufacturer or company to market its goods especially at wholesale in a particular area also : an office or business concern having such a franchise
What is an exclusive distributorship agreement?
An exclusive distributorship agreement gives the manufacturer or supplier greater control over how its product is sold. Additionally, exclusive distribution provides some protection to the distributor against other individuals or entities who might attempt to sell the same product at a more competitive price.
What is a franchisor license?
What is franchising agreement?
What is the FTC franchise rule?
What does the FTC rule state about franchises?
What happens when one business or party owns trademarks, service marks, trade names, and other intellectual property?
About this website
What is a franchisor license?
A franchisor licenses a franchisee to make and sell its products or distribute its services to the public from a retail outlet serving an exclusive territory.
What is franchising agreement?
An arrangement whereby one party (the franchisor) licenses another party (the franchisee) to use the franchisor's intellectual property and business model in the distribution of goods and services.
What is the FTC franchise rule?
The FTC franchise rule states that if a franchisor makes sales or earnings projections for a potential franchise location that are based on the actual sales, income, or profit figures of an existing franchise, the franchisor must disclose the following:
What does the FTC rule state about franchises?
The FTC franchise rule states that if a franchisor makes sales or earnings projections based on hypothetical examples , the franchisor must disclose the following:
What happens when one business or party owns trademarks, service marks, trade names, and other intellectual property?
occurs when one business or party that owns trademarks, service marks, trade names, and other intellectual property (the licensor ) contracts to permit another business or party (the licensee ) to use its trademarks, service marks, trade names, and other intellectual property in the distribution of goods, services, software, and digital information (license)
What is subfranchising in franchise?
What is Subfranchising? Franchisors may at times grant the right to exercise powers, normally reserved for them, to a franchisee in a specific territory. These entities are called “subfranchisors”. They are charged a separate initial fee during the start-up phase for the right of the subfranchisor to exercise the powers in their area.
What rights does a subfranchisor have?
The rights offered in subfranchising include: The right to offer and sell franchises. The right to collect fees and royalties. The right to provide training services and support to franchisees within their designated boundaries. Like the franchisor, the subfranchisor signs a subfranchising agreement with the franchisees (when a franchise is sold) ...
Does a subfranchisor have to split royalties?
The subfranchisor often has to split the fees and royalties which are collected in his domain between himself and the franchise system, but in some cases they may retain a majority of the fees while simply forwarding a certain percentage upwards. The subfranchising agreement usually dictates the amount of the franchise fee and royalty to be received, so even though it may appear as highly lucrative arrangement for the subfranchisor, we have to realize that they have to first spend heavily to sign up a subfranchisee in their territories.
Do subfranchisors have easy arrangements?
Subfranchisors also don’t have such an easy arrangement as it appears to be. They run a substantial financial risk as the investment required to purchase a territory can be very large. Also, subfranchisors are responsible for the leasing arrangements of franchisees in their area and they may face litigation from future disgruntled franchisees.
Do pizza franchises get more than their slice of the pie?
Pizza franchises have certainly gotten more than their slice of the pandemic pie, and we should all tip our chef hats to their example. They’ve leveraged challenging economic and social conditions to be of greater service to customers, franchisees and communities.
Can a subfranchisor operate a franchise?
There is no specific amount of units that a subfranchisor may operate, it all depends on the agreement that they have with the franchisor. The franchisor may also revise the quota if the subfranchisor can successfully meet and operate the number of franchises decided upon in the franchise agreement. The expansion objectives may be measured in franchise agreements executed, units open and operating or units “under construction”. The subfranchisor can open their own units in their region but can also license other franchisees in their region in the time allotted to them in the agreement.
What is a franchise business?
A franchise entails the right to operate a business that is “identified or associated with the franchisor’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark.” The term “trademark” is read broadly to cover not only trademarks, but any service mark, trade name, or other advertising or commercial symbol.
What is the amended federal franchise rule?
The Amended Federal Franchise Rule covers business arrangements where the franchisor “will exert or has the authority to exert a significant assistance or direction in the franchisee’s method of operation or provide significant amount or degree of assistance in the franchisee’s method of operation.” And most franchises do just that!
What is a Binding Agreement that Triggers FDD Disclosure?
The FTC has ruled that a confidentiality agreement (often signed by prospective franchisees before being granted access to the franchisor’s operations manual and other proprietary information) is a necessary step in the sales process but is not the type of agreement that triggers disclosure obligations.
How long do franchisees have to provide FDD?
The rules provide that franchisors must furnish prospective franchisees with a Franchise Disclosure Document (“FDD”) at least 14 calendar days before the prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor or an affiliate in connection with the proposed franchise sale. The 14 day period begins the day after delivery of the FDD. The signing of a binding agreement or receipt of payment by the franchisor or an affiliate of the franchise can occur only after the fifteenth day after delivery of the FDD. This Rule ensures that prospective franchisees have at least 14 days in which to review the disclosures (the so-called “cooling off period”).
Is a franchise a distributorship in New Jersey?
A franchise is different than a distributorship and each is treated differently under NJ laws. Several levels of regulations govern the franchise relationships. First, there are federal regulations and then New Jersey laws which address pre-sale disclosures of information material to the franchise being offered by the franchisor, as well as information about the franchisor itself. Unfortunately, New Jersey’s statutes and regulations are void of any meaningful pre and post franchise and distributorship controls, except when a franchisor proposes to terminate a franchise. That law is known as the New Jersey Franchise Practices Act. Some agreements state that the relationship is that of a distributorship and not a franchise. But there is an old cliché I want you to recall. If it looks like a duck and quacks like a duck… it’s a duck. Some “distributorship agreements” are in actuality “franchise agreements”.
When did franchising start?
These laws will supersede portions of a distributorship agreement that violate federal law. Federal regulations of franchising began in 1979. In 2007, the FTC (Federal Trade Commission) approved amendments to its Franchise Rules which became known as the “Amended Franchise Rule (s).
Is the amended franchise rule unfair?
Specifically, the Amended Franchise Rule provides that it is an “unfair or deceptive practice” to “fail to furnish a copy of the franchisor’s disclosure document to a prospective franchisee earlier in the sales process upon reasonable request.
What is the difference between a distributorship and a dealership?
Another type of distributor is called a “dealership.” While both entities sell the products of another company (the supplier), there is an important difference: use of the supplier’s name. A distributorship can sell the products of the supplier, post images and advertising proclaiming that it sells the supplier’s products, but the distributorship cannot include the supplier’s name in the name of its own business. A dealership is a type of exclusive distributorship in which the distributor can use the supplier’s name in its own business name.
What is distributorship agreement?
A distributorship agreement is a contract made between an individual or entity (the “distributor”) and the supplier, setting out the terms under which the distributor may sell the products. Products are purchased from the supplier at a low cost, then sold to retailers or consumers at a higher cost to cover the distributor’s costs and earn a profit. ...
What is exclusive distribution?
A distributor that is granted exclusive distribution rights is guaranteed to be the only dealer or retailer of a specific product in a specified area, or to be the only dealer or retailer to supply the product to a specified group of people. Contracts for exclusive distribution are most commonly seen in high-end products that require the sales staff to have some degree of training. An exclusive distributorship agreement gives the manufacturer or supplier greater control over how its product is sold. Additionally, exclusive distribution provides some protection to the distributor against other individuals or entities who might attempt to sell the same product at a more competitive price.
When manufacturers supply merchandise to distributors and the distributors supply to retailers, a supply channel is created?
When manufacturers supply merchandise to distributors and the distributors supply to retailers, a supply channel is created. In some cases, there is more than one distributor involved, which creates multiple levels, all of which are governed by distributorship law, as well as the written distributorship contracts that secure the agreements.
What is wholesaler in business?
A wholesaler with exclusive rights to market and sell the products of a manufacturer or supplier, usually within a specified territory.
Who is responsible for defective products?
Under strict product liability laws, the seller, distributor, and manufacturer of a defective product can be held liable if a person is injured due to the defect. Though manufacturers are typically most responsible since they created the product, the liability can also fall to those that distribute or sell the defective items.
Does the manufacturer dictate how the product purchased should be distributed?
Most commonly, the manufacturer does not dictate how the product purchased should be distributed. However, occasions arise where the manufacturer will offer an agent training in order to use the product. The exact conditions and responsibilities of each party are outlined in the distributorship agreement.
What is a franchisor license?
A franchisor licenses a franchisee to make and sell its products or distribute its services to the public from a retail outlet serving an exclusive territory.
What is franchising agreement?
An arrangement whereby one party (the franchisor) licenses another party (the franchisee) to use the franchisor's intellectual property and business model in the distribution of goods and services.
What is the FTC franchise rule?
The FTC franchise rule states that if a franchisor makes sales or earnings projections for a potential franchise location that are based on the actual sales, income, or profit figures of an existing franchise, the franchisor must disclose the following:
What does the FTC rule state about franchises?
The FTC franchise rule states that if a franchisor makes sales or earnings projections based on hypothetical examples , the franchisor must disclose the following:
What happens when one business or party owns trademarks, service marks, trade names, and other intellectual property?
occurs when one business or party that owns trademarks, service marks, trade names, and other intellectual property (the licensor ) contracts to permit another business or party (the licensee ) to use its trademarks, service marks, trade names, and other intellectual property in the distribution of goods, services, software, and digital information (license)