Franchise:  A franchise is a legal agreement that allows one organization with a product, idea, name or trademark to grant certain rights and information about operating a business to an independent business owner. In return, the business owner (franchisee) pays a fee and royalties to the franchisee.

Franchisor:  A franchisor is a company that owns a product, service, trademark or business format and provides this to a business owner in return for a fee and possibly other considerations. A franchisor often establishes the conditions under which a business owner operates but does not control the business or have financial ownership. McDonald's is an example of a franchisor.

Franchisee: A franchisee is a business owner who purchases a franchise from a franchisor and operates a business using the name, product, business format and other items provided by the franchisor. For example, McDonald's sells a franchise to a franchisee. This allows the franchisee to open and operate a McDonald's fast-food restaurant.

Franchise fee: A one-time fee paid by the franchisee to the franchisor. The fee pays for the business concept, rights to use trademarks, management assistance and other services from the franchisor. This fee gives the franchisee the right to open and operate a business using the franchisor's business ideas and products.