A franchise is a contractual agreement between

• A. Competitive firms only
• B. Consumers and distributors
• C. Firms or a firm and individual
• D. Regulatory agencies and firms

Answer: (C)

Franchising is a contractual agreement that licenses a business format, brand, and operating system from one party to another. The franchisor gives the right to use its name, products, and proven methods in exchange for fees and a commitment to follow established standards and procedures. The franchisee can be an individual or another firm, and the contract specifies expectations, training, support, territorial rights, and ongoing obligations. This creates a business-to-business (or business-to-individual) relationship rather than a deal between competitive firms, consumers and distributors, or regulatory agencies and firms. The customers are served by the franchisee, but the legal arrangement is between the franchisor and the franchisee.