WHAT IS FRANCHISE LAW?

Before considering the purchase of a franchise, you may wonder what the best methods of protecting your rights. Rather, what is franchise law? The Business Franchise Guide (CCH) defines franchising generally as “a method of distributing products or services through the use of a marketing plan or system prescribed by the franchisor and associated with a trademark or trade name owned by the franchisor.” Among other things, a franchisor agrees to provide franchisees with training, assistance, expertise and the right to conduct business under a franchise in exchange for money.

Typically, franchises operate as a product distribution franchise or a business format franchise. A product distribution franchise is one in which the franchisee sells a particular manufacturer’s product under the manufacture’s trademark. In exchange for this right, the franchisee pays the franchisor and also often promises to limit its business to selling only those products produced by the franchisor-manufacturer. In most cases, the franchisee’s marketing and management plans are not under the control of the franchisor-supplier. Gas stations and automobile dealerships are common examples of product distribution franchises.

Business format franchises, on the other hand, are characterized by the franchisor having a great deal of control over most areas of the franchisee’s business operations. In business format franchises, the franchisee obtains from the franchisor its entire business concept. The franchisor grants to the franchisee a license to use its trademark as well as extensive training in the promotion, operating and marketing of the business. Convenience stores, fast food restaurants and hotel/motels are common examples of business format franchises.

Similar to franchises, and potentially subject to similar rules, regulations and operating agreements are authorized dealerships and distributorshipssales representation relationships and business opportunities.

Authorized dealerships and distributorships are defined as “independent businesses that are authorized to purchase and resell the products of a manufacturer or supplier.” In other words, dealers are retailers and distributors are “middlemen.” Sales representation relationships are in many ways like independent contractor arrangements. They differ from dealerships and distributorships in that they do not purchase products for resale or maintain an inventory. Rather, they solicit wholesale orders and are compensated by commissions in whole or in part. Finally, business opportunities are characterized by less structure than franchises and create fewer connections between seller and buyers. In the typical business opportunity, a seller provides goods or services enabling a buyer to start a business in exchange for representations that the seller will provide or help find locations, buy back all or some of the buyer’s product, refund the initial payment, or provide a marketing plan.

Speak to a franchise law attorney
To learn more about franchising law and how Garner, Ginsburg & Johnsen, P.A., can help, contact the firm today to schedule a free consultation. The firm’s attorneys can be reached through an online contact form or by calling 866-602-1551.

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