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A franchise is a legal right granted by one company (the franchisor) to another company (the franchisee) to sell particular products or to provide certain services in a given region using a specific trademark or trade name. In return, the franchisee pays a fee to the franchisor. McDonald’s® is an example of a franchised fast-food chain.
In addition to the payment of an initial franchise fee, which is capitalized, a franchise agreement usually requires annual payments. These payments are considered operating expenses.
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