Franchising is a type of __________.

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Question: Franchising is a type of __________.
Options: adminstered system, contractual system, vertically integrated chain, retail-sponsored cooperative, corporate system

Option 1: adminstered system. This choice would imply a system where the central company exerts tight direct control with centralized operations. Franchising, by contrast, relies on a formal relationship (not direct administration) between independent entities, so this is not an accurate description.

Option 2: contractual system. This is the key idea behind franchising: a legal and business relationship established by a contract between the franchisor and the franchisee. The contract outlines rights, responsibilities, fees, and operating standards, making this the correct classification.

Option 3: vertically integrated chain. A vertically integrated chain is owned and controlled entirely by a single company, with ownership of multiple stages of production or distribution. Franchising does not require ownership of the franchise locations by the same company; rather, it uses licensed rights, so this option mischaracterizes franchising.

Option 4: retail-sponsored cooperative. A cooperative structure involves members collaborating to meet common economic, social, or cultural needs, often with member ownership. Franchising is not a cooperative arrangement between independent business owners, so this choice is inaccurate.

Option 5: corporate system. A corporate system implies fully owned outlets managed directly by the corporation. Franchising operates through separate legal entities under a contract, not a wholly owned corporate model, so this option does not capture the essence of franchising.

Summary: Analyzing the options reveals that only the contractual system accurately describes franchising, which rests on a formal contractual relationship between franchisor and franchisee outlining the business arrangement and standards.

Franchising is a type of __________.

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