The New York Law Blog: The Three Types of Franchises Available To Entrepreneurs
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Monday, November 14, 2016

The Three Types of Franchises Available To Entrepreneurs

NY Franchise Law, Business in NY
If you are serious about investing in a franchised business, then you should educate yourself on the types of franchises that exist in the market.

There are many ways to differentiate between different types of franchises, such as size and geographic location, but there are also different types of franchises that entrepreneurs should know:
  • Business Format Franchises: In business format franchises, a company expands by supplying independent business owners with an established business, including its name, products, rules and trademarks. The franchisor generally assists the independent owners in launching and running their businesses. In return, the business owners pay fees and royalties to the franchisor. In most cases, the franchisee also buys its business supplies from the franchiser or from approved vendors. Fast food restaurants are good examples of this type of franchise. 
  • Product Franchises: Also called a "trade name franchise," product franchises involve the sale and / or manufacture of products and the business model covers the overall management of the sale of these products. A franchisor supplies a product family to a franchisee who may also take on the identity, branding and intellectual property of the franchisor. To obtain these rights, store owners must pay fees or buy a minimum amount of products regularly. Exclusive brand-name stores are usually product franchisees.
  • Manufacturing Franchises: A manufacturing franchise is any business that uses components, parts or raw materials to make a finished good. These finished goods can be sold directly to consumers or to other manufacturing businesses that use them for making a different product. This type of franchise is common among food and beverage companies where the franchisor supplies the ingredients and the manufacturers mixes and packages the final product and / or distributes it for sale. For example, soft drink bottlers often obtain franchise rights from soft drink companies to produce, bottle, and distribute the final product. 
There also exists various franchise types depending on the level of franchise opportunities provided, but, all in all, these three basic types comprise the vast majority of the type of franchise opportunities available.

Obviously, most entry-level budding entrepreneurs gravitate towards business format franchises, as both product and manufacturing franchises require significant established infrastructure in place to manage the franchise. No matter what type of franchise type you may be considering, it is best for whatever business you are building to contact a lawyer in the formative stage of your business plan. 
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*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.

Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.