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Frequently used franchise terms

Franchising

A method of business expansion characterized by a trademark license, payment of fees, and significant assistance and/or control.

Trademark

Marks, brand name and logo owned by a franchisor, which are licensed to the franchisee.

FDD (Franchise Disclosure Document)

The format for the disclosure document which provides info about the franchisor and franchise system to the franchisee.

Franchise

A license provided by franchisor to the franchisee governing the relationship and details terms of use of trademarks, fees, support and control.

Franchisor

The person or company that grants the franchisee the right to do business under their trademark or trade name.   

Franchisee

The person or company that is granted the franchise by the franchisor to do business under the franchisor’s trademark or trade name.

Franchise Agreement

Written contract between the franchisor and franchisee detailing each party’s obligations, requirements, limitations, etc.

Franchise Fee

A sum paid by the franchisee to the franchisor at the time the franchise agreement is signed. The fee may cover certain expenses, including but not limited to training costs, on‐site startup costs, and promotional charges.  

Royalty

A fee paid by the franchisee to the franchisor, on a scheduled basis, usually based on a percentage of the franchisee’s gross sales.   

Territory

A specific and defined geography assigned to a franchisee by the franchisor, documented in the franchise agreement.

Estimated Initial Investment

All fees and expenses a franchisee would incur in starting a franchised business.  Includes fees paid to franchisor, all goods and services to be purchased from suppliers.  See detailed estimate in Item 7 of FDD.

Financial Performance Representation (FPR)

Any representation by franchisor or their sales agent to a prospective franchisee that states or suggests a specific level or range of potential or actual sales, income, gross, or net profit. If provided, this info must be provided in Item 19 of the FDD.

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