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Explore the Franchise Legal Hub to learn more about franchising from a franchisors perspective. Franchising is a great business model, but it is highly regulated and success often requires a partnership between business leads and business minded franchise attorneys. Our goal of this Website is to provide a 10,000 foot overview and serve as a resource for certain areas that frequently arise in franchising. Of course, the Website is no substitute for legal advice. We encourage entrepreneurs to seek guidance from an experienced franchise attorney regardless of whether they are an emerging or seasoned franchisor. Many legal issues require a fact specific inquiry.
The buyer will obtain the right to operate a business that is identified or associated with the seller’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark
The seller will exert or has authority to exert a significant degree of control over the buyer’s method of operation, or provide significant assistance in the buyer’s method of operation
As a condition of obtaining or commencing operation of the business, the buyer makes a required payment or commits to make a required payment to the seller or its affiliate.
If these three elements are present, its likely a franchise! There are few narrow exemptions under 16 CFR Part 436, Subpart E, Section 436.8. However, calling a franchise relationship an affiliate or licensee does not make it so. Likewise, refusing to put an agreement in writing does not negate that a franchise relationship is formed. Its important to work with trained legal counsel to understand what satisfies these elements and ensure you either franchise the correct way or do not accidentally franchise. The consequences of illegal franchising can be severe. Franchises can only be offered by disclosure of a Franchise Disclosure Document (the “FDD”).
