When a firm establishes a long-term contract with another firm where the first firm grants a second independent business the rights to use the first firm's name, reputation and business format, this is a:
A) standard supply contract.
B) joint venture.
C) lease contract.
D) franchise agreement.

Question

Quizplus · Accepted Answer

A franchise agreement is a business model where one firm (the franchisor) allows the other firm (the franchisee) to use its name, reputation and business format in exchange for fees and royalties. This arrangement provides the franchisee with a proven business model, training, support, and marketing assistance. In return, the franchisor gets a share of the franchisee's profits and controls how the franchisee conducts business using its trademarked brand.

When a Firm Establishes a Long-Term Contract with Another Firm