Franchising

Question 1

Franchising

Answer 1

a marketing system revolving around a two-party legal agreement, whereby the franhsiee conducts business according to terms specified by the franchisor

Question 2

Franchisee

Answer 2

The party in a franchise contract who is granted selling and other privileges whose power is limited by the franchising organization

Question 3

Franchisor

Answer 3

the party in a franchise contract who specifies the methods to be followed by the franchisee

Question 4

Franchise contract

Answer 4

the legal agreement between franchisor and franchisee

Question 5

Franchise

Answer 5

the privileges in a franchise contract

Question 6

Product and trade name franchising

Answer 6

a franchise relationship granting the right to use a widely recognized product name

Question 7

Business format franchising

Answer 7

the franchisee obtains an entire marketing system and ongoing guidance from the franchisor

Question 8

Master licensee

Answer 8

firm or individual acting as a sales agent with the responsibility for finding new franchisees within a specified territory

Question 9

Multiple-unit ownership

Answer 9

a situation in which a franchisee owns more than one franchise from the same company

Question 10

Area developers

Answer 10

individuals or firms that obtain the legal right to open several outlets in a given area

Question 11

Piggyback franchising

Answer 11

the operation of a retail franchise within the physical facilities of a host store

Question 12

Three alternative franchising systems

Answer 12

Franchisor is a producer or creator -Franchisee is a wholesaler, such as a soft drink bottler

Franchisor is a wholesaler
-Franchisee is a retail establishment, such as a hardware store

Franchisor is a producer or creator
-Franchisee is a retail establishment, such as a fast-food restaurant

Question 13

Pros of Franchising

Answer 13

Probability of success
Training
Financial assistance
Operating benefits

Question 14

Cons of Franchising

Answer 14

Franchise costs- Initial franchise fee, Investment costs, Royalty payments, Advertising costs

Restrictions on Business Operations

Loss of independence

Question 15

Pros of Franchising from the Franchisor’s Perspective

Answer 15

Reduction of capital requirements

Increase in management motivation

Speed of expansion

Question 16

Cons of Franchising from the Franchisor’s Perspective

Answer 16

Reduction in control

Sharing of profits

Increase in operational support costs

Question 17

Three sources of information on a Franchise

Answer 17

Independent, third-party sources
Franchisors themselves
Existing and previous franchisees

Question 18

Basic Requirement:

Answer 18

Franchisors must furnish potential franchisees with written disclosures providing important information about the franchisor, the franchised business and the franchise relationship, and give them at least ten business days to review it before investing.

Question 19

Disclosure Option

Answer 19

Franchisors may make the required disclosures by following either the Rule’s (FTC Rule 436) disclosure format or the Uniform Franchise Offering Circular Guidelines prepared by state franchise law officials.

Question 20

Coverage

Answer 20

The Rule primarily covers business-format franchises, product franchises, and vending machine or display rack business opportunity ventures.

Question 21

No Filing

Answer 21

The Rule requires disclosure only. Unlike state disclosure laws, no registration, filing, review or approval of any disclosures, advertising or agreements by the FTC is required.

Question 22

Remedies

Answer 22

The Rule is a trade regulation rule with the full force and effect of federal law. The courts have held it may only be enforced by the FTC, not private parties. The FTC may seek injunctions, civil penalties and consumer redress for violations.