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What You Need to Know Before Establishing a Franchise in the US

Published on
August 25, 2022
The United States is an enticing market for foreign franchises. The country's large population and wealth of opportunities make it an appealing destination for businesses looking to expand their operations. However, there are a few considerations that foreign franchisees should keep in mind when considering the U.S. market.
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What You Need to Know Before Establishing a Franchise in the US

The United States is highly competitive, and businesses must have a well-developed marketing strategy to succeed. Additionally, the U.S. has a complex legal system, so it is essential to seek professional advice before setting up operations. 

With these considerations in mind, foreign franchises can be successful in the United States. By understanding the market and taking the necessary precautions, businesses can thrive in this vibrant and lucrative market. This blog lists the things you need to know before you form a company in the United States. 

What Does it Mean to Franchise a Business?

Franchising a business is an excellent option if you want to form a company in the United States. But what does it mean to franchise a business? 

Franchising a business means giving someone else the right to use your company's name, logo, and business model to open and operate their own business. In exchange for this, the franchisee pays you a fee and agrees to follow your company's procedures and guidelines. 

Franchising is an excellent way for your financial empire to expand because it allows you to expand into new markets without investing much money or time. It also allows you to tap into the expertise and resources of your franchisees.

What is the Difference Between Franchising and Licensing?

The two terms are often used interchangeably, but some critical differences exist between franchising and licensing. You must understand their nature before you form a company in the United States. The former is a business model in which a franchisor grants a license to a franchisee to use its trademark, trade name, and business system to sell products or services. The franchisee is then responsible for operating the business according to the franchisor's guidelines. 

In other words, the franchise agreement provides the franchisee with the necessary information to create a new location that will follow the same business model as the already successful company. Using a tried and true method will give the franchisee a better chance of success. The local entrepreneur operates McDonald's under an agreement with the corporation. The corporation provides the franchising rights, while the local entrepreneur manages the restaurant. 

On the other hand, licensing is a business arrangement in which a licensor grants a license to a licensee to manufacture, sell, or distribute the licensor's products or services. The licensee is then free to operate the business as they see fit without adhering to the franchisor's guidelines. 

A licensing agreement is a contract between two parties in which one party grants the other party the right to use its intellectual property. Intellectual property can be anything from a logo to a particular character. The licensee typically pays the licensor a fee for the right to use the intellectual property. Product-centric businesses are those that focus on creating and selling products. They usually have a strong product development team and a sales team that works to sell the products.

The most significant difference between franchising and licensing is that franchising uses a franchisor's business model while licensing does not. Franchising also typically involves a hands-on relationship between the franchisor and franchisee, while licensing is a hands-off arrangement.

Conclusion

It is essential for foreign franchises looking to expand to the United States to be aware of the many potential challenges they may face. From cultural differences to the complexities of the American legal system, several factors can make doing business in the U.S. a very different experience from what these businesses are used to. However, with careful planning and a willingness to adapt, there is no reason why foreign franchises cannot be successful in the American market.

Establishing a business in a foreign land can be challenging, but your journey will be less complicated if you have the right support team. You can rely on doola to be your partner as you form a company in the United States, so contact us now for more information!

Doola's website is for general information purposes only and doesn't provide official law or tax advice. For tax or legal advice we are happy to connect you to a professional in our network! Please see our terms and privacy policy. Thank you and please don't hesitate to reach out with any questions.
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BIO
Arjun Mahadevan
CEO and Co-Founder
Co-founder at doola, previous Product Manager at Dropbox, and an alum of the Wharton School of Business. He’s personally processed over 100 applications and spoken to 500 customers.

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