| The Federal Trade
Commission and various states have there own legal definitions
of a franchise, and they vary somewhat from state-to-state.
However, the franchise definition generally includes 3 elements.
It is an ongoing business relationship in which:
1. The franchisor (the franchise seller) grants to the franchisee
(the franchise buyer) the right to use the franchisor's trademark(s)
(including business name, product names or logo, for example).
2. The franchisor exercises some control or assistance related
to the franchisee's business operations or marketing. For
example, franchisors often provide to franchisees an Operations
Manual that describes business processes and systems. Franchisors
also frequently provide marketing materials to franchisees
or require franchisees to get the franchisor's approval before
using their own marketing materials.
3. The franchisee pays the franchisor for the right to become
a franchisee. This is often in the form of an Initial Franchise
Fee and ongoing Royalty Fee payments. However, this element
of the franchise definition can be met in other ways. For
example, this prong of the definition can be met if a franchisee
must purchase goods or services from the franchisor (or its
affiliates) at a price above a reasonable (the legal term
is bona fide) wholesale price.
The franchise legal definition is complex and varies from
state-to-state. Without proper franchise legal advice, you
may accidentally create a business relationship that is a
franchise without you knowing it. There could be negative
repercussions for doing so. There are other laws that should
be carefully considered as well, including those related to
business opportunities or securities, which are highly regulated.
Talk to your franchise attorney about the franchise definition
and other laws that could apply to your business concept.
Contact the franchise lawyer at Peak Law Group now for more
information about starting or purchasing a franchise. Peak
Law Group's franchise attorney is based in Portland, Oregon
and serves franchisors and franchisees nationwide.
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