“franchise” and subsequently of “franchising”
The term “franchise” is a term that dates back to the 13th & 14th centuries in Europe. To be granted a franchise was to be granted a liberty, a privilege to do something. In Medieval Europe, towns developed as agglomerations in which traders and shopkeepers were granted rights/privileges/”franchises” to operate with relative independence from obligations usually due to the feudal authorities. Likewise, some of the first territories colonised in northern America – in the name of the English or French kings - were developed on the basis of franchises granted to the first colonisers to open and develop new territories.
A variation of the meaning today refers to being granted or benefitting from an exemption or immunity from an obligation. For example, in health systems that are subsidised by a public authority, the patient and State share the costs of the medical acts, with the patient usually paying for a “base” portion of the total costs. The subsidising authority exempts itself from that “base” portion, the franchise, and subsidises the remaining portion. Similarly, it is common in most vehicle insurance contracts that the person insured will be responsible for paying a portion of (franchise) of whatever costs are engaged (ie. repair costs following an accident). The “franchise” is designed to the benefit the insurance company.
Note: Industrial franchising
(wholesale or retail)
Manufacturers may licence their product(s), recipes or processing methods to wholesalers who will produce or process the products and sell them on a particular market. Contractual procedures and standards will often be included with the licence. In turn, the products may be sold to other intermediaries, wholesalers or retailers.
This scheme is closer to an industrial licence agreement than to “business-format franchising” unless a separate franchise agreement is adjoined to the industrial licence agreement.
An example is the production/bottling/ Coca-Cola licence agreement. An industrial licence may be combined with a distinct distribution agreement that may be a franchise agreement.
MOVE ON TO NEXT MENU ITEM