There are various ways a business owner can enter the market as a seller. Many companies prefer to create their own products and services, then market and sell those for a profit. For other business owners, a franchise agreement or a distribution agreement works best. Both types of agreements permit sellers to resell items created by another company. But each has different requirements.
A franchise is the right to market or sell goods or services under the trademarked name, or patented process, of an established business. A franchise agreement is a legal contract between the business, called the franchisor, and the purchaser of the franchise, called the franchisee. The franchisee purchases the right to market and sell the items under the trademarked name of the franchisor. A franchise agreement is a legally binding contract between the franchisor and franchisee that details the rights, responsibilities, obligations and compensation of both parties in relation to the purchase and operation of the franchise.
A distributor is a company that buys and sells products from another company. The distributor usually warehouses these products at a facility it owns or leases. It then sells the products to retailers and/or directly to consumers. A distribution agreement is a legally binding contact between the owner of the products and the distributor. This agreement specifies the rights, costs and responsibilities of the parties in relation to the distribution of the products. The distributor purchases the products from the company that makes the products, but does not have any ownership in the company itself.
A franchise agreement permits a business owner to sell products or services that are typically already established within the marketplace. The business owner, or franchisee, does not have to create, market or sell a product from scratch. Often there is already a solid customer base for the item or items. A distributorship agreement permits the distributor to take advantage of the same benefits. Distributors sell products that are created and marketed by another company. The distributor does not have to create this product or brand awareness from scratch, but instead can take advantage of a built-in clientele.
Under a franchise agreement, the franchisee is permitted and encouraged to use the trademarks and brand name of the franchisor as part of its everyday business practices. The franchisor also provides marketing and training support to help the franchisee succeed. A franchisee must follow specific guidelines in the marketing and selling of the products to maintain the brand identity of the franchisor. A distributor is not permitted to operate under the trademarked name of the company whose products it distributes. Instead, the distributor operates under its own business name. It functions as a reseller of the products but does not conduct business on behalf of the company that makes the items. Also, a franchisee pays an initial fee and ongoing royalties to the franchisor for the right to operate the business under the trademark name of the franchisor. A distributor simply pays for the items it buys from the company that makes the products.
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Source : Mack Mitzsheva