The term 'franchising' is used to describe many different kinds of business relationships, but in its most common use refers to 'business format franchising’.

In business format franchising, a company licenses its trademarks and proven business methods to others in exchange for a recurring payment, a percentage of gross sales or profits, and some annual fees. A company that licenses its trademarks and methods is called a franchisor. An individual who pays to use a franchisor’s trademarks and methods is called a franchisee. Franchisees open clones of the franchisor’s business, and run them with the continual assistance of the franchisor for a predetermined period.

The relationship between the franchisor and a franchisee is governed by a contract called the Franchisee Agreement. This Agreement outlines the privileges, terms, conditions, restrictions and other details of the arrangement. The business is operated under a franchise agreement, this is often called a franchise outlet, or simply a franchise.

The Franchise Agreement typically entitles the franchise to an initial training an operations manual, a start-up package, a delineated area of operation (a" territory"), on-going support, national and/or regional marketing, support and of course, a trademark license. The Agreement entitles the franchisor to various payments and fees, and asserts its control over its trademarks, the way in which its products and services are marketed and sold, and the quality and standards of the business as a whole.

Franchising allows previously untrained persons to own and operate a tried and proven business, and gives companies a profitable means of expanding. The benefits to both parties, and to the economy as a whole are significant.