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Ryan Smith
Attorney / Founder

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Portland, Oregon

  Core Values

What is a Franchise?

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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