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How do franchises work?

There are many different types of business structures that can be created and operated such as sole proprietorships, partnerships, corporations and LLCs. For some Florida companies, the choice to create a franchise company or to enter into a franchise business ends up being a viable and attractive option. The ability for individuals to start businesses with the support of larger organizations can make something possible that otherwise would not be. Franchising one’s successful recipe for a business can provide a lucrative means of growing a business and a brand without the need for hands-on involvement in all outlets.

Franchises involve one party—often an individual—paying another party—frequently a company—to license the use of the company’s name and general business plan. Franchise agreements must detail out the requirements of both parties in order to guard against losses in the unfortunate case of any breach of contract or some other form of contract dispute. 

Every franchising agreement is unique but as indicated on the Federal Trade Commission’s Bureau of Consumer Protection website, it is common for franchisors to offer some assistance with training and marketing to franchisees. Some companies also assist in securing business locations, hiring employees, supplies and more.

Franchisees are generally bound by contractual obligations to pay royalties on set schedules, regardless of actual income. If the move into a location requires build-out expenses, these can sometimes be worked into the franchise agreement. Franchises can include international companies or domestic-only operations. When properly executed, franchise business models can be highly beneficial to both franchisees and franchisors. This information is not to be taken as legal advice, but merely a general understanding of franchise operations.

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