Table of Contents
In Short
- Franchising enables businesses to expand by allowing others to operate under their brand, with various models available.
- The five main types of franchises are job, distribution, business format, manufacturing, and management franchises.
- Each franchise type has specific legal considerations, including quality control, territory rights, and operational guidelines.
Tips for Businesses
When considering franchising, it’s essential to understand the different franchise types and their associated legal obligations. A well-drafted franchise agreement is crucial for all formats, ensuring clarity on responsibilities and protecting your brand. Legal advice tailored to your business goals can help you choose the right franchise model.
Franchising is a popular business model that allows businesses to expand their brands and reach new markets. The franchising model means that you can enable individuals to operate their own businesses under your established brand. However, not all franchises operate in the same way. Understanding the different types of franchising is essential to ensure you choose the right type for your business goals. This article will outline the five main types of franchising, providing relevant legal considerations for each type.
Job Franchise
A job franchise involves a franchisee operating their business alone or with a small team. The business could be home-based or involve mobile services like plumbing, repairs, gardening, or cleaning. The franchise’s primary role is to perform a specific job or service using the franchisor’s business model.
The following table outlines legal considerations for job format franchises.
| Legal Consideration | Explanation |
| Quality control | The franchise agreement should include explicit quality standards since job franchisees represent your brand directly through their services. You can elaborate on these in the franchise operations manual. |
| Territory rights | You should establish clear territorial boundaries in the franchise agreement to prevent conflicts and market oversaturation. |
| Licensing | Ensuring your franchisees obtain the relevant licences is crucial in any franchise, especially in job franchising. Job franchises often involve activities that require licences, such as serving food, street trading, alcohol sales, and event coordination. |
Distribution Franchise
In a distribution franchise, the franchisee focuses on distributing and selling products.
The following table outlines legal considerations for distribution format franchises.
| Legal Consideration | Explanation |
| Supply agreements | You must define the terms of product supply, including pricing, delivery schedules, and payment terms, within the franchise agreement. |
| Product liability | You should also clearly define responsibility for product defects. Typically, you would be responsible for manufacturing defects, while the franchisee handles product issues related to storage, handling, and retailing. |
| Territory | Like with a job format franchise, you should clearly define your distribution franchisees’ exclusive territory. By providing territory rights, you ensure your franchisees have a secure area to market and sell products without competition from other franchisees. |
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Business Format Franchise
The business format franchise is one of the most common types of franchising. It involves a franchisee adopting the franchisor’s complete business model, including branding, operations, and marketing.
The following table outlines legal considerations for business format franchises.
| Legal Consideration | Explanation |
| Operational guidelines | You must outline your business model clearly in the franchise agreement and operations manual. You must also include detailed operational guidelines that they must follow. These guidelines will cover everything from daily operations to customer service and marketing. The more precise and thorough you are, the more likely you are to maintain brand consistency across your franchise network. |
| Intellectual property rights | Since your franchisees will use your intellectual property (IP), such as logos and proprietary systems, you should protect your IP rights by registering patents and trade marks with the Intellectual Property Office (IPO). You should also draft a robust franchise agreement that outlines how franchisees can use your IP assets. |
| Advertising and marketing contributions | Franchisees in a business format franchise often contribute to a central brand marketing fund. You will specify the amount franchisees contribute and carefully use and manage the marketing fund. |
This handbook covers all the essential topics you need to know about franchising your business.
Manufacturing Franchise
In a manufacturing franchise, you would grant the franchisee the right to manufacture and sell products using your brand and processes.
The following table outlines legal considerations for manufacturing format franchises.
| Legal Consideration | Explanation |
| Quality control | You must set clear guidelines on your brand’s manufacturing processes to ensure all products meet your brand standards. |
| Supply of materials | You might provide franchisees with a list of suppliers who can provide the necessary raw materials to manufacture products. Alternatively, if franchisees are to source these materials independently, set clear standards on product quality. Doing so helps to ensure consistency and prevent supply chain issues. |
| Product liability | Given that the franchisee is involved in manufacturing, liability for product defects can be complex. The franchise agreement should outline responsibility for warranties, defects, and consumer claims. |
Management Franchise
A management franchise involves the franchisee overseeing their business’ operations while their employees perform the daily tasks.
The following table outlines legal considerations for management format franchises.
| Legal Consideration | Explanation |
| Employment law compliance | As employers, franchisees in a management franchise must comply with all relevant employment laws, including minimum wage regulations, health and safety standards, and anti-discrimination laws. |
| Training and support | In any type of franchise, you must provide adequate training. In a management franchise, your franchisees are then responsible for training their employees. In addition to training, you must outline ongoing support provisions for franchisees within the franchise agreement. |
| Operational autonomy | While your franchisees manage their businesses, you may impose specific controls to ensure brand consistency across all franchise locations. You should explicitly state these standards in the franchise agreement. |
Key Takeaways
Understanding the different types of franchising is crucial for franchisors. The five main types of franchises include the following:
- job franchises;
- distribution franchises;
- business format franchises;
- manufacturing franchises; and
- management franchises.
The legal considerations that come with each type of franchise are equally important. However, there are no strict boundaries between each format, so the legal considerations relevant to one could also apply to another. For example, a well-drafted franchise agreement covering the franchisor-franchisee relationship and operational standards is vital in all franchises. Its contents can differ slightly depending on the type of franchise you operate.
If you are considering franchising your business, our experienced franchise lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The five main franchise formats are job franchises, distribution franchises, business format franchises, manufacturing franchises, and management franchises.
The business format franchise is the most common type of franchise. It involves a franchisee adopting the franchisor’s complete business model, including branding, operations, and marketing.
We appreciate your feedback – your submission has been successfully received.
