When deciding whether franchise development makes sense for their company, the owners may inquire why they have to go to the trouble and expense of the franchise development process.
These business owners ask if they can call the relationship a dealership, license or business opportunity in order to avoid the legal requirements of franchise development.
What Are The Key Elements?
In order to explain this issue, you must understand the legal definition of a franchise as determined by various court cases in the U.S. It has been ruled that a franchise has three criteria:
- Using the same name
- Paying a fee
- Receiving “substantial” assistance
In one circumstance, the court found that merely putting together a marketing plan constituted “substantial” assistance. In another case, it was determined that a payment as low as $500 created a franchise relationship.
Because the franchise relationship affords both parties a number of legal safeguards, the courts have a tendency to be very liberal in calling a particular business opportunity a franchise.
They reason that it is not particularly onerous to complete the franchise development process after all, thousands of U.S. companies have successfully fulfilled the requirements for franchise development. Therefore, the courts want to extend the safeguards of the franchise relationship to as many business owners as possible.
If you are considering offering a business opportunity that involves sharing the same name, your accepting a fee and your giving the purchaser assistance, you would be wise to seek legal counsel to determine if it is indeed a franchise. If so, it would be prudent to complete the franchise development process.
If you would like to speak with one of our franchise consultants today, please don’t hesitate to call (706) 356-5637!