What is a franchise / franchising?

How does franchising differ from other forms of distribution?

When evaluating a franchise agreement it is important to first establish whether the aim and contents are really to do with franchising. The delimitation of franchising with regards to related sales forms is of practical significance for the legal security of the people involved, as certain legal norms have, until now, only applied to franchise systems. In some economic areas the boundaries between franchising and other cooperative sales forms are beginning to become blurred.
Many putative franchise systems use in reality related or mixed sales forms. As a result vertical partnerships and license agreements are mistaken for franchising or authorised dealers, agents and commission agents pose as franchisees, although the extent of their independence and the question of liability are very different from those of franchisees. E-commerce and the internet will create new forms of distribution which in turn shall require further laws or regulations to provide the necessary legal definitions. Thanks to the German Franchise Associations there is a clear list of some essential features of franchising:

Market Framework
The market framework consists of a decentralised marketing system and legally independent sales outlets.

Performance Programme
The performance programme or franchise package of the franchisors consists of the use of industrial property rights, the procurement, marketing and organisation concept, the building-up of the business and the training, the further development of the system as well as constant active support. The role of the franchisees is to invest their time, capital and information in the business.

Vertical Cooperative Organisation
The vertical cooperative organisation is realised through a strict organisation, intensive cooperation between the partners and a system of control and instructions, always from the point of view of being bound to an independent distribution partner..

Uniform Appearance
The uniform appearance includes the name, brand and sign, uniform outlets, a joint strategy and a conduct conforming to the system.

Legal Independence
The legal independence can be seen in the business initiative and that franchisees work in their own name and on their own account.

Contractual Continuous Obligations
Contractual continuous obligations include a long-term cooperation between the partners, the rights and duties of the franchisees, the rights and duties of the franchisors and a regulation concerning payments.

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