Glossary of Franchise Terms

Navigating the franchise seas is no easy feat. But it can become especially difficult if you’re not sure what the difference is between a FDD and UFOC—or do they mean the same thing? Not to worry, Franchise Times has you covered with this short list of important terms to know before setting sail (and sale) with a franchise.

(A)
AREA FRANCHISEE: An agreement made between the franchisor and franchisee that gives the latter the rights to develop a set number of locations in a certain area over a specific length of time.

(C)
CHURNING: The process in which a failing or failed franchise location is continually resold to new franchisees, even with the prospect of continuing failure; a trait to be wary of when learning about a franchisor.

C CORPS: U.S. business structure that provides non-tax benefits (such as limited liability for owners) and is popular as a staging base for raising large amount of investment capital by going public.

CONVERSION FRANCHISEE: An independent businessperson who agrees to convert his or her businesses into the franchisor’s brand and method of operation.

(D)
DEFAULT: When either the franchisor or franchisee fails to meet their obligations under the franchise agreement.

DISCLOSURE DOCUMENT: Paperwork given to a franchisee which contains all the information and operating statistics about a franchisor, including information about the franchise and expected costs; also known as the UFOC (Uniform Franchise Offering Circular).

(E)
EXCLUSIVE TERRITORY: An agreement wherein the franchisor gives the franchisee an exclusive area, and will not develop another franchise or company-owned unit; also known as a Protected Territory.

(F)
FEDERAL TRADE COMMISSION (FTC): The agency of the U.S. government that regulates franchising (and commerce in general).

FRANCHISEE: The person or company that is given the rights to do business under the franchisor’s brand.

FRANCHISOR: The person or company that grants the rights to the franchisee to use their brand and services.

(I)
INTERNATIONAL FRANCHISE ASSOCIATION (IFA): The industry trade organization that represents franchising.

(L)
LLC: Limited Liability Company. Also known as a "with limited liability (WLL)".

LP: Licensed Products.

(M)
MASTER FRANCHISEE: In addition to being an Area Franchisee, the Master Franchisee has the right to sell franchises to in their specified territory to sub-franchisees.

MULTI-UNIT FRANCHISEE: A franchisee that owns more than one franchise, but may not be an Area Franchisee.

(R)
REFRANCHISING: Existing locations that may or may not have ever been franchised before, but are currently operated by the franchisor with intent to sell to a franchisee; also known as Retro-franchising. The opposite of Churning.

(S)
S CORPS: A regular corporation that has between 1 and 100 shareholders and that passes net income or losses to shareholders in accordance with Internal Revenue Code, Chapter 1, Subchapter S. Note: The income of a C corporation is taxed, whereas the income of an S Corporation (with a few exceptions) is not taxed under the Federal income tax laws.

SUMMARY JUDGEMENT: If there is no disputing the facts of a civil case, a judge can't grant the opposing party a quick victory (or summary judgement) without a trial.

SOPHISTICATED FRANCHISEE: A skilled, educated franchisee whose knowledge and expertise often stretches beyond single-unit franchises.

(T)
TURNKEY: A location that a franchisor builds and then sells to a franchisee fully equipped and ready to operate.

(V)
VICARIOUS LIABILITY: Another term for negligence. Vicarious liability assigns liability for an injury to an employee who did not cause the injury, but who has a particular legal relationship to the employer who did act negligently.

 

 

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