What is a franchise?: Federal Franchise Laws
According to federal laws, a franchise has three elements:
| 1. | The use of a common trade name or trademark;
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| 2. | The payment of a fee; and
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| 3. | The rendering of "substantial" assistance.
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Thousands of companies in the U.S. successfully franchise their business.
Therefore, the courts and federal laws have a tendency to find anything which has these three elements a franchise
- regardless of what the company calls the program, be it a license, partnership, association, distributorship, co-operative,
joint venture or limited partnership.
How large must the fee be to be considered a franchise?
It can be as little as a one-time $500 payment,
or "indirect" franchise fee payments, such as the profits derived from the sale of product or services to a "licensee".
Just what is "substantial" assistance?
This assistance can take the form of training, an operating system,
marketing, purchasing, on-going advice, a proprietary computer program or other forms of support.
Helping the "licensee" develop a marketing plan has been deemed to be substantial assistance.
The courts throughout the U.S. have expanded the definition of a franchise. When given the chance to protect
a family who lost their life savings in a "licensing arrangement" with a much larger company, many judges and/or
juries will conclude the "license" was really a franchise. They do so in order to give the family a judgment against the
"Franchisor" because it failed to call the business relationship a franchise and give the "Franchisee" the required
franchise legal documents, prior to signing the contract.
If this scenario occurs, the "Franchisor" can be hit with a huge judgment.
Contact our franchise consultants today to franchise your business! »»
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