Final answer:
Franchising is a business arrangement where someone sells the rights to their business name and product or services in a territory, where the franchisee pays fees to the franchisor. This is commonly seen in the fast-food industry with examples like McDonald's. Trademarks play a critical role in franchising.
Step-by-step explanation:
Franchising is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell the parent company's product or service to others in a given territory in a specified manner. The process grants the franchisee the ability to start a business based on the franchisor's business model and brand name. In exchange for the right to use the franchisor's name and sell its products or services, the franchisee pays an upfront franchise fee along with ongoing royalty fees.
Franchises can be found in various industries, but they are particularly common in the fast-food industry. Examples of successful franchises include McDonald's and Subway, where each restaurant location is owned by a franchisee who operates under the company's established business model. This form of business allows for quick expansion and a widespread brand presence. Trademarks can be involved in a franchise, with the franchisor's trademark often being a critical asset that attracts franchisees due to its market recognition and consumer trust. The franchisee benefits from the franchisor's established reputation, business strategy, and often, ongoing support in areas like marketing and operations.