{"id":5543,"date":"2017-01-12T11:17:41","date_gmt":"2017-01-12T16:17:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/types-of-franchise-businesses.html"},"modified":"2026-06-02T11:38:00","modified_gmt":"2026-06-02T16:38:00","slug":"types-of-franchise-businesses","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/types-of-franchise-businesses.html","title":{"rendered":"Types of Franchise Businesses"},"content":{"rendered":"\n
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Types of Franchise Businesses<\/h1>\n\n
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\n By Amber Sheppard, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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A franchise business is a venture where a business owner<\/span> (franchisee) pays a licensing fee to a larger company (franchisor<\/span>) to use its established <\/span>brand<\/span> name<\/span>, trademarks, and proven <\/span>business model<\/span>. This franchise model<\/span> allows the franchisee to benefit from the franchisor<\/span>‘s <\/span>brand<\/span> recognition<\/span>, training programs, and existing customer base.<\/p>\n\n <\/div>\n\n\n\n

What Is a Franchise?<\/h2>\n

A business franchise is an established company that has brand recognition<\/span> and a proven <\/span>business model<\/span>. Entrepreneurs<\/span> who want to set up an independent business<\/span> may apply for a license to get access to the franchise brand<\/span>, support, and operational systems<\/span>. Franchisors<\/span> must give potential franchisees a franchise disclosure document<\/span> (FDD<\/span>) before an agreement is signed. The franchisee must pay an initial <\/span>franchise fee<\/span> and ongoing royalties<\/span> to the franchisor<\/span>.<\/p>\n

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What Is the Difference Between a Franchise and a Small Business?<\/h2>\n

A franchise is often a small business but rather than creating an independent business<\/span> startup<\/span>, the small business owner<\/span> pays a franchise royalty and licensing fee. The franchise owner now has access to an established brand<\/span> in exchange for that fee.<\/p>\n

The franchisor<\/span> is the entity that owns the brand, trademarks, and business model<\/span>, such as McDonald\u2019s<\/span> Corporation. The franchisee is the individual or business that pays a licensing and royalty fee<\/span> (a franchising fee) to operate a location under that brand.<\/p>\n

If you sign a franchise agreement<\/a> with McDonald’s<\/span> (franchisor<\/span>), you become a franchisee. You can operate using the McDonald’s<\/span> brand and system.<\/p>\n

Small business owners<\/span> with limited years of experience owning a business might find a franchise setup an attractive investment. Perks the franchisor<\/span> can offer include:<\/p>\n