Basic Business Law. Lesson 7. Smaller Business Entities

It is also possible that a child cannot look after him or herself as a result of
illness or an accident. A trust can be the ideal solution because if something
happen to the parents the trustees can look after the child and ensure that the required expertise to do so is
available.
5. Franchise Agreements
5.1. The nature of a franchise agreement
A franchise is a business method and not really a type of business ownership. As such a franchise can be a
company, a close corporation or even a partnership. Franchise agreements have a contractual origin. The
franchisor is the person who starts a company or develops a concept. The franchisees are the persons who
duplicate the franchisor’s concept and distribute the product or service on a large scale.
Business Format Franchising is where a distribution network operates under a shared trademark or trade
name. The franchisees pay the franchisor for the right to do business under that name for a specified period
of time and can use the franchisor’s business system or format. Some of the specific permissions granted to
the franchisee under the agreement is to use the name, product and services, goodwill, operating manuals
and standards, marketing procedures, systems, and support facilities of the franchisor. The franchisor is
obliged to give initial and on-going services and support to the franchisees. An example of a Business
Format Franchise is a travel agency with different franchises across the country.
Product & Trade Name Franchising is where there is only a sales relationship between a supplier and a
dealer, for example a car dealership. The dealer sells the products of the franchisor in exchange for fees and
royalties and has an obligation to sell only the franchisor’s products.
5.2. The advantages and disadvantages of franchising
The advantages of a franchise can be summarised as follows:
• The franchisee buys into a turn-key business with an established brand.
• Operational procedures are tried and tested.
• It is less risky to buy into a franchise than to set up your own business.
• The franchisee gets set- up support from the franchisor.
• The franchisees are trained by the franchisor.
• On-going operational support is available.
• The franchisee belongs to a business family from the outset.
• The franchisee shares in group benefits like preferential financing, bulk buying, and mass marketing
• The franchisees share in the benefits of the franchisor’s product innovation.
The disadvantages of a franchise business include the following:
• The cost of buying into a franchise is high.
• The minimum standards set for furnishings, fittings and equipment can further increase costs
• A percentage of your turnover will be paid over to the franchisor on a monthly basis.
• You will need to run the business strictly according to the operations manual
• There is no room for individual initiative.
• The franchisee is only free to sell the franchise with the approval of the franchisor
• Bad decisions by the franchise operator, will affect the franchisees negatively.