Lecture slides: Franchises

Question 1

What is franchising?

Answer 1

Using the brand and logo of another company

Question 2

What are franchise agreements?

Answer 2

Rights granted by a party (franchisor) authorizing and requiring another party (franchisee), in exchange for direct and indirect financial compensation, to engage in business of selling goods or services on its own behalf under a system designated by the franchisor which includes know-how and assistance, prescribes in substantial part the manner in which the franchised business is to be operated, includes significant and continuing operational control by the franchisor, and is substantially associated with a trademark, service mark, trade name or logotype designated by the franchisor.

Question 3

Name two characteristics of franchise agreements?

Answer 3

Economical risk weighs on franchisee
- Independent and entirely on its own behalf

Question 4

Give 3 reasons why franchisees take on all the economical risk?

Answer 4

1. Benefit from commercial formula, image of franchise product
2. Franchisee benefits form the image and distinctive marks/licenses of franchisor
3. Franchisee benefits from know-how developed by franchisor (IP rights and the use of know how

Question 5

What are distribution franchises?

Answer 5

• Franchisee sells certain goods/products according to distribution system/schema and under individualized trademarks of franchisor
• Franchisee collects goods directly with franchisor or with central procurement office of a list of certified suppliers
   Knowhow
   Obtaining better and cheaper supplier conditions
   Organizing outlets

Question 6

What are product franchises?

Answer 6

• Franchisor produces goods and sells them through his network of franchises
   Often brand-/ trademark only: franchisee may not sell other products

Question 7

What are services franchises?

Answer 7

• Franchisee supplies services according to a method developed by the franchisor and under its individualized trademarks

Question 8

What are industrial franchises?

Answer 8

• Franchisee produces products which are subject of franchise agreement and sell products under brand of franchisor
   Production according to manufacturing licenses based on patents and/or technical know-how + trademark licenses

Question 9

What are the rights and obligations of the franchisors?

Answer 9

1. Operational control by franchisor
   - No governance / ownership
    Functional control of franchised business
    Performance & quality must be equal for all franchises
2. Cooperation needs to be fostered
   - Know-how = knowledge and experience gained by franchisor
   - Franchisor must offer more than more technical support

Question 10

What are the three obligations of franchisee?

Answer 10

1. Make reasonable efforts to operate franchise business according to franchisor’s business method
2. Franchisee must follow franchisor’s reasonable instructions in relation to business method and maintenance of reputation of network
3. Keep up reputation of franchisor

Question 11

What is distributrship / concessionaire / dealership?

Answer 11

Buying and reselling goods
1. Chooses in principle its price for selling
2. Difference in price is his income

Question 12

Name general characteristics of distributorship?

Answer 12

1. Concession to (re)sell:
   - Obligation for distributor to buy
   - Obligation for supplier to supply to distributor
   - Further obligations related to resale, marketing etc
   - To be distinguished from sales contracts taking place within this framework