What Are Common Franchising Terms and Definitions?

• 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.