As with any trade or industry, franchising has its own terms and definitions.  Below we have compiled some common franchise terms and definitions that can help when entering the franchising world.

Franchise Disclosure Document (“FDD”) – a document required by the Federal Trade Commission that provides information about the franchisor and its franchise system

Franchise Agreement – the written contract between the franchisor and the franchisee, which gives the franchisee the right to use the franchise name and operating system in exchange for an initial franchise fee and ongoing royalty payments

Trademark or Brand – a word, name, slogan, design, or logo that a business uses to identify its products or services and distinguish them from its competitors

Franchise System – a franchisor and its franchisees who all sell the same products and services under the same brand

Initial Franchise Fee – initial lump-sum payment the franchisee pays the franchisor to acquire the franchise, in exchange for training and other assistance provided by the franchisor

Royalty – a periodic payment (usually a percent payment of revenues) the franchisee makes to the franchisor for the right to use the franchisor’s brands

Advertising Fee – a periodic payment (usually a percent payment of revenues) the franchisee makes to a communal fund used to promote the products and services of all the franchisees in a system

Prospective Franchisee – a person who contacts a franchisor or franchise broker to purchase a franchise

Franchise Broker or Seller – an independent sales agent who typically promotes and facilitates sales for a number of franchise brands

Single-Unit Franchise – a franchisee operates one franchise location or territory

Multi-Unit Franchise – a single franchisee operates more than one franchise location or territory

Master Franchise – a master franchisee acquires the right to sell single franchises to other franchisees within a specified territory, provides assistance to each franchisee within his territory, and shares the franchise fees and royalties with the franchisor

Franchise Development Agreement – a contract between a franchisor and a single franchisee under which the franchisee is obligated to purchase, open, and operate multiple franchises within a specified territory according to an agreed-upon schedule

Franchised Business -means the business to be operated by the Franchisee under the franchisor’s trade name

Territory -means the geographical area set out in the franchise agreement where the Franchise Business may do business.

For your franchising needs contact Gettins & Nelson, LLC at 513-831-6660 or by email at


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