Are there any legal definitions of a franchise?

Under English law there is no legal definition of a ‘franchise’. However, both the European Commission and the British Franchise Association have produced a definition, which can be found on their websites at www.europa.eu and www.british-franchise.org.

In the UK, franchising is not subject to any particular legal regulation, and so the need to have a definition is less important. However, the role of the BFA should not be forgotten.

The BFA, which although not a statutory body, does seek to regulate the franchise industry in the UK to the extent that franchisors are members or associate members of the organisation.

The definition of a ‘franchise’ in the UK is potentially very wide because it could be used to describe many different business relationships.

The most commonly recognised form of franchise is the business format franchise where a franchisor grants a franchisee a licence to carry on the same type of business as the franchisor under its name, usually at an agreed location.

There are other forms of franchising, but the elements that make up a franchise usually include permission to carry on a business under a certain name belonging to or associated with the franchisor, a right for the franchisor to exercise an element of control over the business, an obligation on the franchisor to provide support and assistance to carry on the business and a requirement for the franchisee to pay the franchisor periodically.

What Franchise adds:

Although there are no legal definitions for the franchise industry. They can broadly be defined as the following:

Definition of franchise:

A franchise is a type of business model that involves a business owner (known as the franchisor) granting another party or person (the franchisee) the right to use its trademark, trade name, and business system to sell products and services according to certain agreed guidelines.

Essentially, a franchise enables people to operate their own businesses under the brand name and operational framework of an established company. The franchisor provides support and guidelines to ensure consistency and quality, while the franchisee pays fees and royalties for the right to operate the business.

For example, McDonalds operates a franchise model, which means suitable franchisees are able to sign a franchise agreement with head office so they can open their own fast food restaurant using McDonalds food and branding.

Franchisor definition:

A franchisor is usually the original business owner or founder who grants the franchisee permission to operate a business using their brand, products, business systems.

The franchisor provides the franchisee with the training, support, and guidelines to ensure that the franchisee’s business aligns with the overall brand standards. The franchisor benefits from expanding the brand’s reach and receiving fees or royalties from the franchisee’s operations.

Although, franchises are often associated with big brands like Starbucks, many small business owners decide to expand by becoming franchisors as the franchisee is the person providing the capital to open a new location.

There are different types of franchising within this and how a franchisor sets up their agreement with franchisees will depend on their overall goals with scaling the business.

Definition of franchisee:

A franchisee is person or group that purchases the rights to operate a business under the franchisor’s brand and business systems.

The franchisee invests their own money to establish and run the franchise location, following the guidelines and operational standards set by the franchisor.

In return, the franchisee receives training, support, and the benefits of operating under a recognised brand. The franchisee remains in charge of the gross sales and revenue like any other business owner would, but they do pay an initial franchise fee and some ongoing royalties and other fees to cover the costs of activities such as marketing will are often rolled out at a centrally.

The brands available for franchising are incredibly varied with costs to match, this means the franchisee community is particularly diverse. Some people will be using franchising to start their own business for the first time, with the safety net of training - they’ll likely to be involved in delivering day to day services.

Meanwhile others will be seasoned entrepreneurs who have built a large portfolio of franchise businesses. There are also investment companies that will buy franchise locations in large quantities. These parties may take a management role, meaning they’re less involved with the shop floor.