Providing Legal Guidance for Businesspeople
How do you know if your offer to help someone set up their own business is a franchise that triggers all the legal requirements under federal and state franchise laws? Some companies that make these types of offers are not even aware that they are selling franchises.
At Carter & Tani, our attorneys have more than 30 years of experience handling franchise matters. As a small law firm, we are able to provide cost-effective, personalized services for developing businesses. If you have questions about your business ventures or are concerned about legal compliance issues, contact us today to schedule a confidential consultation.
Some companies may think they avoid the legal regulation of franchising by calling their arrangement a "license agreement," a "business opportunity," a "dealership," or something other than a "franchise." The label of an arrangement does not determine whether it is a franchise, though. It also does not matter if the parties intend to create a franchise relationship.
If there are 3 specific characteristics present in the relationship, it is a franchise regardless of what it is called and regardless of the parties' intent. Under federal law, these 3 characteristics are as follows:
- Standards for Trademark: The franchisee sells goods or services which are required or advised to meet the franchisor's quality standards, or which are identified by the franchisor's trademark or service mark;
- Control or Assistance: The franchisor exercises or has the authority to exercise significant control over the franchisee's method of operation, or gives the franchisee significant assistance; and
- Fee: The franchisee is required to make a payment to the franchisor or a person affiliated with the franchisor as a condition of obtaining or commencing the business.
Variations of the "control or assistance" prong of the definition exist in several state laws. For example, in some states the "control or assistance" characteristic is replaced by the presence of "a marketing plan or system" prescribed or suggested by a franchisor. In other states, the "control or assistance" characteristic is replaced by the presence of "a community of interest in the marketing of goods or services."
There are also several exclusions and exemptions under state and federal franchise law, which allow the arrangement to be offered without complying with the registration and/or disclosure requirements.
Failing to comply with applicable franchise laws as you start a business can have several negative consequences. The government may investigate your company, your agreements with the "licensee" or "dealer" may be unenforceable, or the licensee or dealer may later claim rights under franchise termination and non-renewal laws.
Our attorneys can review your proposed or existing business arrangements under state and federal franchise law and advise you as to whether compliance with franchise law is required. If your business model permits, we can also help you structure the arrangement to avoid the creation of a franchise.
Contact Carter & Tani today to speak with an experienced franchise lawyer. We can effectively advise you on any legal matter related to your franchise or business.
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