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Types of Franchises

Distributorships, Chain-Style Business Operations and Manufacturing or Processing-Plant Arrangements

Sole Proprietorship Disadvantages

Proprietor owns all of the burdens of any losses or liabilities which causes Unlimited liability/legal responsibility, lacks continuity on the death of the proprietor and limited to his/her personal funds and loans when raising capital

Sole Proprietorship Advantages

Proprietor owns the entire business and receives all of the profits, easier and less costly, No documents need to be filed, proprietor can sell/transfer all/part of business to another party at any time and does not need approval from anyone else and pays only personal income taxes

The Importance of Good Faith and Fair Dealing

court tries to balance the rights of both parties.

Quality Control

day-to-day operation of franchise business is normally left to the franchisee which is why standards are set.

Business Premises

discloses whether leased or purchased. Specifies who is responsible for supplying equipment and furnishings for the premises.

Franchise Termination

duration of the franchise should be determined between the parties. Usually starts with a short trial period. Opportunity to cure - for certain period of time

The Franchise Rule

requires franchisors to disclose certain material facts that a prospective franchisee needs in order to make an informed decision concerning the purchase of a franchise.

Wrongful Termination

usually more favorable to the franchisor than to the franchisee

Typically the franchise termination must be

"for cause" - death, disability, insolvency, breach of agreement, failure to meet quotas. A reasonable time must be given for termination.

Chain-Style Business Operations

Franchisee operates under a franchisor's trade name and is identified as a member of a select group of dealers that engage in the franchisor's business. The franchisee is generally required to follow standardized methods of operation. Ex-McDonalds, Century 21

Manufacturing or Processing-Plant Arrangements

Franchisor transmits to the franchisee the essential ingredients or formula to make a particular product. Ex - Coca-Cola

The Franchise Contract Includes

Payment for the Franchise, Business Premises, Location of the Franchise, Business Organization, Quality Control and Pricing Agreements

Pricing Agreements

a franchisor cannot set the prices at which the franchisee will resell the goods because such pricing may be violation of state/federal antitrust laws. - can suggest prices but cannot mandate them

A, B, _, D

C

Franchises

an arrangement in which the owner of a trademark, trade name, or copyright licenses others to use it in the selling of goods or services.

Laws Governing Franchising fall under _____ law and ____ ____ ____

contract and federal regulations of franchising

Business Organization

franchisor may require business to use a particular organizational form and capital structure. Also may set standards for sales quotas, quality, and record keeping.

Distributorships

manufacturer (franchisor) licenses a dealer (franchisee) to sell its product. Ex - mobile dealership, beer distributorship

Franchisee

purchaser of a franchise is generally legally independent of the franchisor. A franchisee can operate as an independent business person but still obtain the advantages of a regional or national organization.

Sole Proprietorships are the ______ form of business

simplest

The owner is the business

sole proprietorship

The Franchise Rules is required to explain

termination, cancellation, renewal provisions, disclosures concerning any lawsuits

The Franchise Contract

the franchise relationship is defined by a contract between the franchisor and the franchisee. Specifies the terms and conditions of the franchise and spells out the rights and duties of the franchisor and franchisee. If either party fails to comply, can be subject to lawsuit for breach of contract.

If franchise exists primarily for the sale of products manufactured by the franchisor

the law governing sales contracts as expressed in Article 2 of the UCC applies.

Franchisor

the seller of the franchise