Common Franchise Terms

COMMON FRANCHISE TERMS

• Business format franchise:
  This type of franchise includes not only a product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals.

• Disclosure statement:
  Also known as the FDD, or Franchise Disclosure Document, the disclosure document provides information about the franchisor and franchise system.

• FDD:
  The Franchise Disclosure Document, FDD, is the format for the disclosure document which provides information about the franchisor and franchise system to the franchisee.

• Franchise:
  A license that describes the relationship between the franchisor and franchisee including use of trademarks, fees, support and control.

• Franchise agreement:
  The legal, written contract between the franchisor and franchisee which tells each party what each is supposed to do.

• Franchisee:
  The person or company that gets the right from the franchisor to do business under the franchisor’s trademark or trade name.

• Franchising:
  A method of business expansion characterized by a trademark license, payment of fees, and significant assistance and/or control.

• Franchisor:
  The person or company that grants the franchisee the right to do business under their trademark or trade name.

• Product distribution franchisee:
  A franchise where the franchisee simply sells the franchisor’s products without using the franchisor’s method of conducting business.

• Royalty:
  The regular payment made by the franchisee to the franchisor, usually based on a percentage of the franchisee’s gross sales.

• Trademark:
  The marks, brand name and logo that identify a franchisor which is licensed to the franchisee.