To learn more about converting your license system to a franchise, click here. To learn more about franchising your business, click here. To reach our team directly, give us a call at Licensing Vs. Latest Articles What is Franchising? However, any waiver of franchise rights is not enforceable and the franchisee will still be able to enforce its rights regardless of the terms of the principal agreement. Whenever a licensor exercises significant control or provides significant assistance, the risk of a franchise relationship exists.
Franchise law is not affected by the intentions of the parties or the form of the agreement signed. If the three elements exist, a franchise exists. Distinguishing a licence agreement or a distribution agreement from a franchise agreement is a complex task that is dependent upon the facts and circumstances of each situation.
A careful review is required to determine if an arrangement is captured by franchise law or whether any exemptions are available. Intentions, forms and waivers are not enough. The balance between licensing and franchising can be fragile and risky! The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. All Rights Reserved. Password Passwords are Case Sensitive.
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A Fragile Balance. To print this article, all you need is to be registered or login on Mondaq. What is a franchise? Consequences of Becoming a Franchise If a business arrangement is a franchise, the law protects the franchisees in three principal ways: 1 the parties have a duty of fair dealing; 2 the right of the franchisees to associate with each other; and 3 extensive disclosure obligations are imposed on the franchisor.
No Opt Out Another feature of franchise law is that a franchisee cannot opt out, or waive, any of its rights under franchise law. Thoughts to Take Away Whenever a licensor exercises significant control or provides significant assistance, the risk of a franchise relationship exists.
Ian Scarlett. Most Starbucks locations, for example, are company-operated but will sometimes enter licensing arrangements so they can use locations that would otherwise be inaccessible. These include grocery chains, bookstores, or colleges and universities. The company will also consider other high-volume or high-traffic retail locations as potential locations for the Starbucks program.
Licenses do not typically come with restrictions in terms of a territory or market for the exclusive use of the licensee. They are governed by standard contract law, so there are fewer administrative burdens for both parties than with a franchising arrangement. Some business opportunities offer the best of licensing and franchising. They offer tools or training to help you start your own business, but usually at a lower cost and with fewer restrictions than a franchise.
Many vending companies, for example, offer support and training but have no royalty or franchise fees. The investor pays for the machines and supplies and gets a system to follow for running the business, and in return, they get to take advantage of branding, support and training.
These businesses are usually very scalable, offer semi-absentee ownership and are less restrictive than franchises. You can find licensed business opportunities in many areas, including automotive, business services and food.
Whether licensed or franchised, the most important part of deciding on what type of business is right for you is by looking at the big-picture stuff. Are you excited about it? Will it suit your lifestyle? Will you make a good return on your investment?
If that occurs, the licensor needs to immediately comply with franchise laws or readjust the operations to avoid franchise laws. Corporate franchising involves an organization that seeks successful franchise planning and operation. It has franchise disclosure-registration laws, which define how the business operates, and business opportunity laws, which describe regulations on how the business runs. The seller must make all paperwork available to the buyer before the sale and give the buyer enough time to peruse the documents.
Oftentimes disguised as licensing agreements, illegal franchise sales don't stipulate the rights to use specific logos or give customers goods and services available through a legally obtained franchise. Purchasing a license agreement may seem like a cheaper way of opening a franchise, but copycat stores are illegal. The license agreement doesn't give the right to claim a business as a franchise.
When you enter into a franchise, you receive benefits from the organization you're supporting. You have access to its customer base and products as well as a smaller risk of failure compared to opening your own independent studio.
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