I am often asked “When considering franchising your business, what are some of the most important issues?” Here, I will examine one of those issues: why is franchising your business important?
As a professional in franchise consulting and development, I am often asked questions such as “Why go through all the steps of franchising your business? Wouldn’t it be easier to just call the concept a dealership or joint venture and skip all the legal requirements of franchising your business?”
We must look at the legal definition of a franchise to find the answer to this question about franchising your business.
Over time, U.S. courts have found a franchise has three elements:
- The use of a common name
- The payment of a fee
- The rendering of substantial assistance
The courts’ reasoning is basically along the following:
- Franchising your business is not that difficult. After all, thousands business owners in the U.S. have successfully completed the process of franchising their business.
- Franchise laws incorporate various protections for both franchisees and franchisors.
- It is in the best interests of both parties to have the benefit of these protections.
Therefore, courts tend to hold a business relationship is a franchise if it meets the above three elements. It doesn’t matter what you call it — a dealership, license or joint venture — the courts will find it a franchise if it meets these three elements when franchising your business. It is important remember this legal definition when deciding about franchising your business.
A court has held that helping a “licensee” develop a marketing plan meets the element of rendering substantial assistance. The payment of a fee as little as $500 has been deemed to meet the legal definition of a franchise.
If you are contemplating offering business opportunities that involve the payment of a fee, a common name and helping the purchaser, then I advise you to carefully explore whether you are offering a franchise. If franchising your business, do it properly.
Thinking About Franchising?
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So, if you are still asking the “should I franchise my business” question over and over with no clear direction, give us a call at (706) 356-5637, or contact us through our online form. We look forward to helping you take your business to the next level and beyond.