What is a franchise, and what is a common benefit and cost?

• A. Franchise is a nonprofit entity; benefit: tax exemption; cost: none.
• B. Franchise is a standalone business with no branding; benefit: independence; cost: none.
• C. Franchise is a business model where a franchisee operates under franchisor’s brand and system; benefit: established brand and support; cost: ongoing royalties and strict operating requirements.
• D. Franchise is a joint venture with equal ownership; benefit: shared control; cost: shared profits.

Answer: (C)

A franchise is a business arrangement where the franchisee runs a business using the franchisor’s brand, products, and operating system, plus ongoing support. The key benefit is leveraging an established brand and a proven system—training, marketing, and proven procedures—that can reduce risk and help a new location start more smoothly. A common cost is paying ongoing royalties to the franchisor, along with an initial franchise fee and adherence to strict operating standards and supplier rules. Other descriptions don’t fit franchising: a nonprofit entity isn’t how franchising works; a standalone business with no branding misses the whole point of using a franchisor’s brand and system; and a joint venture involves shared ownership, not a franchisor–franchisee relationship.