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Franchising Glossary

Acquisition center Part of franchise network or independent enterprise that buys lots of goods at discount price for supply to subsidiaries or network partners. Usually, acquisition center stores and supplies products simultaneously, which implies owning a developed infrastructure.
Advertising payments Monthly/annual franchisee payment to franchiser for trademark network promotion activities.
Area developer Person, partnership or corporation that has bought the rights on developing the defined area by finding franchisee for franchiser on it. The initial investment in the area is defined by estimated amount of potential franchises on it. With a new franchisee, area developer gets part of his initial investment, so by the time of reaching intended number of franchisees, area developer compensates the franchiser his initial investment. Further he will gain profit in interest income from service payments (royalties) and will assist franchisee according to franchiser’s recommendations. At the same time, a franchisee makes a contract with franchiser directly. Usually such contracts have an article on development.
Business Franchise For this kind of relations, a franchiser sells license to a person or other company for the right to open shops, stalls or store networks for sales of set of products and services to customers under the franchiser’s name.
Business Format Franchise Type of franchise relations when franchiser licenses franchisee for making business under its name and gives all the organization and activity support.
Certificated supplier Raw material, accessories, spare parts or components supplier that meets franchiser’s requirements in terms of product quality.
Conversion franchise A method of franchise network expansion, when a private enterprise starts working under the franchise contract and joins the system of franchise enterprises working under one franchisee control.
Copyright Legal form of protection of authors and creators of an original product from unlawful use or pecuniary claim from alias for a limited period. Copyright can cover business ideas, trade secrets, art, published and unpublished manuscripts.
Corporate franchising Form of franchise business when a franchisee operates a system of franchise enterprises instead of one enterprise.
Corporate identity System of attributes, corporate colors and franchiser symbols, which differentiates it from others.
Corporate Standards Documents and materials containing requirements for business organization and conduction.
Exclusive franchiser’s partners Suppliers who exclusively supply a company with their products and/or trademark.
Financial statement Written record of enterprise financial condition, including balance sheets and profit and loss statements.
(franchise unit)
Right to conduct economical activity using principle of franchising secured in a contract, agreement, as well as activity (production, servicing and etc.) that uses principle of franchising.
Franchise territory (area) Administrative borders of the city or other settlement of franchise or franchise enterprise activity. Its aspects can be determined by many factors: administrative boarders or the amount of key clients in the specific area.
Franchisee Natural or legal body that acts according to the acquired franchise.
Franchiser Natural or legal entity offering contracts on franchises and providing fulfillment of contract terms on their side.
Franchising Business activity when one party (franchiser) gives the other party (franchisee) for a fee a set of exclusive rights on using a trademark, know-how, commercial information, as well as guidance materials and complex of services covered by the franchise contract. Contract relations when one party (owner) is obliged to give the other party (user) for fee and without fixed time limits the right to use a set of owner’s exclusive rights in user’s business, including the right for use of trade name and/or owner’s brand, secured commercial information and other contract-included objects of exclusive rights: trademark, service trademark, etc.
Franchising agreement An agreement according to which one party (owner) gives the other party (user) rights on the usage of the trade name, commercial information, trademark, service trademark and etc. for a specific fee and for a limited or unlimited time. Parties may be legal or natural persons, registered as self-employed entrepreneurs.
Franchising companies network Unity of franchising companies under one trademark.
Franchising company Franchisee company, started and functioning according to the franchising agreement.
Intellectual property Exclusive rights on results of intellectual activity and equal means of product, work and services differentiation. Intellectual property includes: patents and licenses; trademarks and goodwill; copyright and allied rights objects; know-how, provided to and used by franchisee after contract relations begin.
Joint venture Legal body with partnership status, established in franchising for franchise creation and management through condominium.
Know-how Exclusive information and/or franchiser’s innovations in technical, technological, financial or other type of activity, registered in proper way.
License Permission for a specific kind of activity, which otherwise would be unlawful, given by the competent authority.
License fee (initial investment) One-off payment franchisee pays the franchiser for the scope of exclusive rights and services under the franchise contract.
Licensee Legal body (franchisee) that gains rights on using the trademarks, know-hows, patents, trade secrets and other within contract-defined limits from its owner (licenser).
Licenser Legal entity (franchiser), owner of trademarks, know-hows, patents, trade secrets and other, who gives a licensee licenses for use of his rights within specified scope.
Logo Exclusive symbol, sign, text, picture or number, used by a company for self-identification.
Master-franchise Exclusive right on franchise sale and/or activity on the specific territory. After acquiring a master-franchise on the specific territory, franchisee has the right to sell the franchises on that territory.
Master franchisee (sub-franchiser) Person or legal body that has bought the rights on developing a large area (often a country) for franchise sale on this area. Franchising fee is paid to franchiser for rights on development of the area, and often master franchisee must pay royalties to franchiser and follow the supply contract. De facto, master franchisee is the franchiser on the specified area, because it makes contracts with franchisees directly and gets their initial investments and service payments. But it is also obliged to provide training, marketing, support in the area and all other services in the same extent and quality as the franchiser.
Multi-unit franchisee Franchisee that owns several enterprises operating inside one franchise network.
Non-exclusive license License that gives a franchisee the right to use franchiser’s trademark on the franchisee territory but leaves the right to franchiser to give the trademark to other franchisee on the same territory (except for the defined with franchisee limits around his franchising enterprise).
Operations manual A set of documents franchisee gets when entering the unified franchise system. Manual contains a set of rules, standards, procedures and recommendations on launching and operating the franchisee enterprise business within one franchise system.
Pilot project A shop or enterprise created for testing design which will be implemented as a network base.
Potential franchisee Private entrepreneur or a company operating for developing franchise activity (buying franchise).
Product franchising
(trademark franchising)
Franchising focused on the retail product sale. In product franchising, franchiser is usually the manufacturer that sells the retail product or semi-finished product to the dealer-franchisee. The latter provides pre-sale or post-sale services to customers of franchiser’s products and refuses the sale of competitor’s products. This rule is vital for relations of franchiser’s partners and franchisee-dealer.
Production franchising Form of franchise relations when a franchiser gives or recommends equipment to franchisee, and franchisee produces and sells product under franchiser brand.
Quota Tradable amount which franchisee must buy from franchiser according to a franchise contract.
Royalty Periodical payments franchisee makes to franchiser for using the scope of exclusive rights on trademark, know-how, commercial information and various services, provided by franchise contract. Royalty is usually calculated as percentage of total sales, although other forms are also present.
Subfranchising Method of franchise network development when franchiser gives franchisee the right to present the franchise on the specific area (inside the country) and substitutes the right of sale, service and control on the area.
Subsidiaries system franchise Person, partnership or corporation that buys the rights on making business in the specific area from franchiser and manages all franchising enterprises by itself.
Trademark Personal logo or brand an enterprise uses for self-identification, officially registered in the country or internationally. Trademark is an intangible asset of enterprise-owner (franchiser) and can be used by franchisee after the licensing contract with franchiser.
Uniform Franchise Offering Circular Document that contains data about the network and must be given by franchiser to future partner before making the contract. According to international practices, a standard circular includes: information about enterprise, its managing personnel, history, financial reports copies, franchise acquirement contract and the list of previously valid franchises.

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