Goldstar Hair Fashions, Inc (Goldstar), a famous beauty salon chain based in the United States, plans to expand its business overseas. It decides to open a salon in London

Question

Due to the prohibitive costs of doing so, it allows a local entrepreneur, Marjorie, to provide beauty services under its trade name. However, any failure to conform to Goldstar's standards of services on the part of Marjorie will result in termination of the agreement. Identify the type of agreement between Goldstar and Marjorie. How will Goldstar benefit from this agreement?

Answer 1

Goldstar and Marjorie have entered into a franchising relationship. A franchising relationship is based on a private commercial agreement between the franchisor, Goldstar, who owns a trade name or trademark, and the franchisee, Marjorie, who sells or distributes goods using the trade name or trademark. It is a method of marketing goods or services. The franchisee usually pays a percentage of the gross sales to the franchisor in exchange for use of the trademark name, construction of the building, and numerous other services. Usually, the franchisee is a local entrepreneur whom the franchisor supplies with goods to be sold under conditions set out in the agreement. Failure to meet such may lead to termination of the franchise agreement.
Goldstar will establish a presence in the London market, expand its operations and customer base, and obtain regular income from Marjorie. This income will include any or all of the following: initial license fee—a lump-sum payment for the privilege of being granted a franchise; royalty fee—a fee for the continued use of the franchisor's trade name, property, and assistance that is often computed as a percentage of the franchisee's gross sales; assessment fee—a fee for such things as advertising and promotional campaigns and administrative costs, billed either as a flat monthly or annual fee or as a percentage of gross sales; lease fees—payment for any land or equipment leased from the franchisor, billed either as a flat monthly or annual fee or as a percentage of gross sales or other agreed-upon amount; cost of supplies—payment for supplies purchased from the franchisor.