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What Is A Franchise?

If you offer to help someone set up a business as a franchise, that will trigger all the legal requirements under federal franchise law and State Franchise Laws. Some companies that make these types of offers are unaware that they are selling franchises.

At Carter & Tani, Attorneys at Law, we have more than 25 years of experience handling franchise law 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 venture or are concerned about legal compliance issues, contact our franchise law attorneys today to schedule an initial consultation in Wheaton, Illinois.

Factors Used to Determine if a Business Is a Franchise

Some companies may think they are avoiding the legal regulation of franchising by calling their arrangement a license agreement, a business opportunity or a dealership. The label of the arrangement does not determine whether it is a franchise. It also does not matter if the parties intend to create a franchise relationship.

If three specific characteristics are present in the relationship, it is a franchise regardless of what it is called and regardless of the parties' intent. Under federal law, these factors include:

  • Use of trademark: The franchisee sells goods or services that 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.
  • 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.

Compliance With Franchise Laws Is State Specific

Variations of the "control or assistance" prong of the definition exist in the State Franchise 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.

Obtain Legal Counsel to Address Compliance Concerns

If you fail to comply with applicable federal franchise law and State Franchise Laws when starting a business, this can have negative consequences. The government may investigate your company and determine that your agreement with the licensee or dealer is unenforceable. The licensee or dealer may later claim that you failed to comply with franchise laws in selling them a license or dealership, or may claim rights under franchise termination and non-renewal laws.

Our franchise law attorneys can review your proposed or existing business arrangement under federal franchise law and State Franchise Laws. We are committed to helping you take the right steps to become or remain in compliance with the law. If your business model permits, we can help you structure the arrangement to avoid the creation of a franchise. Or we can help you establish a proper franchise program in compliance with franchise laws.

Contact Us to Stay on the Right Side of the Law

Before making a business arrangement, make sure you are in compliance with the law. Our franchise law attorneys have extensive experience representing franchisors nationwide. We offer initial consultations in Wheaton, Illinois, to help you structure your business correctly and minimize compliance concerns. Contact our franchise law attorneys to put our experience on your side.