The business practice that licenses a company’s brand and business model to another company is franchising.
In a franchise arrangement, the franchisor grants a franchisee permission to operate under an established brand and use its commercial methods. The franchisee is usually an independent business owner, not a branch employee, but agrees to follow the franchisor’s standards for products, services, design, training, marketing, and customer experience.
Franchising differs from outsourcing, which contracts another company to perform a particular function, and from leasing, which concerns use of property or equipment. Factoring is a finance practice in which a business sells or assigns its invoices to obtain cash; it does not transfer a brand system.
The franchisee commonly pays an initial fee and continuing royalties or other charges. In return, the franchisor may provide manuals, training, purchasing support, advertising, technology, and operational guidance. Early systems associated with Singer sewing machines and Martha Matilda Harper’s salons helped establish the recognizable business-format model used today by restaurants, hotels, retailers, and service companies.