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Licences given by manufacturers who wish to limit the distribution outlets of their products or who wish all their sales in one area to be handled by specified persons. The term also applies where a patent holder licenses a foreign manufacturer to jroduce the goods covered by the patent. The person giving the licence is known as the franchisor and the person receiving it is the franchisee. The latter is usually asked to make an advance down payment for the privilege of making or distributing the goods and also must often agree not to purchase from any manufacturer other than the franchisor and not to sell outside the area specified in the franchise. For these reasons alone the system is open to abuse. Innocent people often find themselves out of pocket by purchasing franchises which do not provide the profits they were led to expect.

Reference: The Penguin Business Dictionary, 3rd edt.