Franchise Law Overview

In simple terms, franchising is among those business practices that enables a franchising company to license its business model, corporate goodwill, patents, trademarks, and logos. The franchise model will enable a company in expanding quickly along with being an alternative to the architecture of multiple locations everything owned via an entity or a single person. The chain store or single owner model needs significant investment via the owner both during startup and all through the operation concerning the satellite locations. The franchising company, meanwhile, will enable the parent company in passing a major part of the expansion expense to the prospective franchisees.

A relationship will be considered a franchise if it contains  the definitional components of a franchise under state and federal law. Franchising law comprises many different laws, namely contract law, commercial leases, obligations, intellectual property, distribution law, competition law, and so on. The Federal Trade Commission (“FTC”) defines franchising as an arrangement where the franchisor:

  • Offers significant help to the franchisee to operate a business or control a franchisee’s mode of operation significantly
  • License the franchisee in distributing services or goods under or operating utilizing the trademark of the franchisor
  • Needs minimal fee payment from the franchisee.

Generally the franchise law of a state applies only if:

  • A franchised business is located within the state;
  • The franchise sale or offer is made within the state;
  • The franchisee resides in the state.

Franchising law and its different categories

Typically, franchise laws are categorized into three types, namely disclosure laws, relationship laws, and registration laws. These are as follows,

1) Disclosure laws- this regulates laws such as:

  • Compulsory cooling-off period prior to the franchise sales;
  • Banned franchise sales practices;
  • Needed pre-sale disclosures.

2) Relationship laws- this law will govern specific facets of the relationship amid the franchisee and the franchisorsuch as:

  • Grounds to terminate a franchise;
  • Fair treatment of franchisees;
  • Grounds to not renew a franchise;
  • Notice and cure times before termination.

3) Registration laws- this law needs things such as;

  • Franchise registration;
  • Franchise salesperson’s registration;
  • Franchise advertising registration.

Franchising laws vary and are not uniform. For a better understanding, consult our experts.