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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