Understanding Legalese With Ease: Franchise
Welcome to another post in our Understanding Legalese With Ease series.
The definition of franchise is:
A special privilege conferred by government upon an individual or corporation, and which does not belong to the citizens of the country generally, of common right. It is essential to the character of a franchise that it should be a grant from the sovereign authority, and in this country no franchise can be held which is not derived from a law of the state. In England, a franchise is defined to be a royal privilege in the hands of a subject. In this country, it is a privilege of a public nature, which cannot be exercised without a legislative grant. See Bank of Augusta v. Earle, 13 Pet.595, 10 L. Ed. 274; Dike v. State, 38 Minn. 366, 38 N. W. 95; Chicago Board of Trade v.People, 91 111. 82; Lasher v. People, 1S3 111. 226, 55 N. E. 663, 47 L. R. A. 802, 75Am. St. Rep. 103; Southampton v. Jessup, 162 N. Y. 122, 56 N. E. 538; Thompson v.People, 23 Wend. (N. Y.) 578; Black River Imp. Co. v. Hol- way, 87 Wis. 584, 59 N. W.126; Central Pac. R. Co. v. California, 162 U. S. 91, 16 Sup. Ct. 766, 40 L. Ed. 903;Chicago & W. I. R. Co. v. Dunbar, 95 111. 575; State v. Weather- by, 45 Mo. 20;Morgan v. Louisiana, 93 D. S. 223, 23 L. Ed. 860.A franchise is a privilege or immunity of a public nature, which cannot be legally exercised without legislative grant. To be a corporation is a franchise. The various powers conferred on corporations are franchises. The execution of a policy of insurance by an insurance company, and the issuing a bank-note by an incorporated bank, are franchises. People v. Utica Ins. Co., 15 Johns. (N. Y.) 387, 8 Am. Dec. 243.The word “franchise” has various significations, both in a legal and popular sense. A corporation is itself a franchise belonging to the members of the corporation, and the corporation, itself a franchise, may hold other franchises. So, also, the different powers of a corporation, such as the right to hold and dispose of property, are its franchises. Ina popular sense, the political rights of subjects and citizens are franchises, such as the right of suffrage, etc. Pierce v. Emery, 32 N. H. 484.The term “franchise” has several significations, and there is some confusion in its use. When used with reference to corporations, the better opinion, deduced from the authorities, seems to be that it consists of the entire privileges embraced in and constituting the grant. It does not embrace the property acquired by the exercise of the franchise. Bridgeport v. New York & N. H. R. Co., 36 Conn. 255, 4 Am. Rep. 63.
So what does that mean?
Let’s see if we can simplify the short novel of a definition!
A franchise is a system of franchise units owned by franchisees but operating under one name owned by the franchisor. One of the most recognizable franchises in the world is McDonald’s®. McDonald’s® is a corporation that owns not only the name but all of the products, logos, licenses, systems, etc. McDonald’s® is a franchised business meaning that the franchisor (McDonald’s®) sells the right to operate a McDonald’s® location to franchisees.
A franchisee is part of a system that provides them with a set of rules of operation that gives them limited say in how the business is operated including things from how the store is decorated to what they can sell and charge customers. Franchisees also pay fees to the franchisor in exchange for the use of their system including the established brand name as well as national advertising campaigns. Many franchisors will market the franchise as a “business in a box,” something that can be purchased, opened up, and generate a profit from. Of course, this often works better in theory than in reality. One must choose a franchise system carefully and make sure that they are getting enough benefits from the franchisor to warrant the fees and restrictions placed upon them.
Not all franchise systems are created equal. Do the research and consult with an attorney before purchase a franchise!