Understanding And Complying With Federal And State Franchise Laws

With more than 25 years of experience handling franchise law matters, Carter & Tani is able to provide business and franchise clients with the personalized and cost-effective legal solutions they need to achieve their business goals.

What Is A Franchise?

Determining whether or not a business is a franchise can be a complicated process. Some companies may think they can avoid the legal regulation of franchising by calling their arrangement a license agreement, business opportunity or dealership. In reality, it does not matter how an arrangement is labeled, nor does it matter whether or not the parties intended to create a franchise relationship.

When three specific characteristics are present in a business 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 franchise definition exist in specific 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 laws, that allow the arrangement to be offered without complying with the registration and/or disclosure requirements.

Address Your Compliance Concerns

When starting a business, failing to comply with applicable federal and state franchise laws can have significant financial and legal 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 nonrenewal laws.

We are committed to helping you take the right steps to become or remain in compliance with the law. Our franchise law attorneys can review your proposed or existing business arrangement to ensure that you are in compliance with applicable federal and state franchise laws. Alternatively, if your business model permits, we can help you structure the arrangement to avoid the creation of a franchise.

Address Your Business And Franchise Concerns

Before making a business arrangement, make sure that 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. Call us today at 630-668-2135 or contact us through our online contact form.