There are many situations in which a small company wants to boost its sales by associating its name with a bigger company. In this situation, the company asks to buy the rights to use the name of a better established company within the same industry. This process is called franchising. There are some terms and conditions that should be met before a franchise can be authorized.
The first thing usually done is to measure the standards of quality of the smaller company. The bigger company asks to be given authority to inspect the premises of the smaller company. All this is an effort to ensure that the small company maintains high quality standards.
This is because, the products that will be produced by the small company will be associated with the big company. Any poor quality in the goods produced is likely to affect the sales of the parent company. And this is something that the bigger corporation does not want.
Payment for use of the name is usually made in advance. This can be of two forms. The first and most common is usually a fixed amount. A fixed price is usually set by the corporation for any other company that wants to hire the name. The other form is one that depends on the sales made by the smaller company. A certain percentage of sales is usually paid to the parent company.
The parent company usually maintains constant inspection sessions on the smaller company. The initial inspection was so as to make sure the standards of the company were apt to be associated with the bigger company. However, there is a possibility that these standards would be flouted in the course of the operations. The parent company will as such ensure that such things as labor laws and high moral standards are maintained. The agreement, in many cases, holds a clause that the parent company can cancel the contract any time it establishes certain violations have been committed.
Other than just corporations, there can also be the franchise of an event. Some popular musical, economic, academic as well as traditional events are usually franchised all over the world. An event that is usually associated with a certain geographic location is duplicated in another region with the same name but different organizers.
The practice of franchising is a business contract and it therefore has some legal strings tied to it. There have been numerous cases where small companies or ones with ill repute try to improve their sales by using the name of a better established company without its consent. This is illegal and can result into paying heavy fines or even serving jail terms.
Generally, franchising is made to small companies that have been in existence for some period of time. They are very few cases in which a franchise has been given to a company that has just started operations. This is because the bigger company is unsure of how the new company will be received by the public and as such it does not want any negative reviews to be associated with it.
The first thing usually done is to measure the standards of quality of the smaller company. The bigger company asks to be given authority to inspect the premises of the smaller company. All this is an effort to ensure that the small company maintains high quality standards.
This is because, the products that will be produced by the small company will be associated with the big company. Any poor quality in the goods produced is likely to affect the sales of the parent company. And this is something that the bigger corporation does not want.
Payment for use of the name is usually made in advance. This can be of two forms. The first and most common is usually a fixed amount. A fixed price is usually set by the corporation for any other company that wants to hire the name. The other form is one that depends on the sales made by the smaller company. A certain percentage of sales is usually paid to the parent company.
The parent company usually maintains constant inspection sessions on the smaller company. The initial inspection was so as to make sure the standards of the company were apt to be associated with the bigger company. However, there is a possibility that these standards would be flouted in the course of the operations. The parent company will as such ensure that such things as labor laws and high moral standards are maintained. The agreement, in many cases, holds a clause that the parent company can cancel the contract any time it establishes certain violations have been committed.
Other than just corporations, there can also be the franchise of an event. Some popular musical, economic, academic as well as traditional events are usually franchised all over the world. An event that is usually associated with a certain geographic location is duplicated in another region with the same name but different organizers.
The practice of franchising is a business contract and it therefore has some legal strings tied to it. There have been numerous cases where small companies or ones with ill repute try to improve their sales by using the name of a better established company without its consent. This is illegal and can result into paying heavy fines or even serving jail terms.
Generally, franchising is made to small companies that have been in existence for some period of time. They are very few cases in which a franchise has been given to a company that has just started operations. This is because the bigger company is unsure of how the new company will be received by the public and as such it does not want any negative reviews to be associated with it.
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