What is a franchise?
Franchise · franquicia · الامتياز التجاري · 特许经营
A franchise is a legal and commercial relationship in which a brand owner (the franchisor) licenses its trademark, business system and ongoing support to an independent operator (the franchisee), who pays fees — typically an initial franchise fee plus ongoing royalties — to operate under the brand.
Under the US FTC Franchise Rule, a commercial relationship is generally a franchise when three elements are present: use of a common trademark, significant operating assistance or control, and a required payment. Franchising spans more than 300 industries, from quick-service food to senior care.
In practice
The label matters most when a business is structured, not when it is marketed. A company expanding through 'licensing', 'dealer' or 'partner' programmes can still meet a legal definition of a franchise if its contracts combine a brand, operating control and required payments. The US FTC Franchise Rule applies to an arrangement 'whatever it may be called', so lawyers test the actual terms rather than the name. Definitions differ between countries, and a common mistake is assuming that leaving the word out of the paperwork is enough to avoid franchise rules.
Not to be confused with
A franchise is the relationship itself; the franchisor and franchisee are the parties to it, and the franchise agreement is the contract that records it. A franchise also differs from a simple trademark licence: a licence lets you use a name, while a franchise typically adds a prescribed operating system and ongoing assistance or control from the brand owner.
What to check before you sign
- Does the arrangement you are offered meet the franchise definition in each country involved, and has the brand met that country's disclosure or registration rules?
- Is this business model already franchised in your country, or would you be the first operator, and what local evidence shows it works?
- Which payments count as required fees, including any charges routed through the franchisor's affiliates rather than paid to the brand directly?
Questions to raise with the franchisor and your own adviser — general information, not legal advice. Rules differ by country.
📌 Also sourced from
- 16 CFR 436.1 — Definitions (Legal Information Institute) ↗ — inPractice: the US rule's franchise definition covers any continuing commercial relationship or arrangement 'whatever it may be called'; checks[2]: 'required payment' includes consideration paid to the franchisor or an affiliate
Related terms
See it in practice
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