Final answer:
Franchising is a business relationship where one party (the franchisee) is granted the right to use the franchisor's brand, products, and processes in exchange for fees. The franchisee also benefits from trademarks and support from the franchisor. It is a way to expand a business while supporting new entrepreneurs.
Step-by-step explanation:
​​Franchising involves an organization granting the right to use its brand name, products, and processes to other organizations in exchange for an upfront payment and a percentage of revenues generated by the other organizations. When a business opts to start as a franchise, they are purchasing these rights from the franchisor. This business model is significant because it allows for the expansion of the franchisor's brand while enabling the franchisee to operate under a proven business framework, which often includes extensive support, such as training, supply chain support, and help in setting up operations.
Moreover, entities that enter into a franchising agreement are bound by certain legalities such as the use of trademarks. A trademark is any word, name, symbol, or device that is used in commerce and can distinguish one brand's goods or services from those of another. It is legally registered or established by use and represents a company or product. A key aspect is that trademarks must not be confused with patents or trade secrets, as they relate to form and style and do not cover the idea behind the product.
Thus, when engaging in franchising, franchisees must adhere to trademarks, pay the necessary fees, and uphold the franchisor's business standards and reputation, which are crucial to the success of the franchise.