BLAW Ch. 36
legal requirements for all business forms
1. business name registration 2. occupational licensing 3. state tax registration 4. health and environmental permits 5. zoning and building codes 6. import/export regulations
1. sole proprietorship 2. partnership 3. corporation
3 major business forms entrepreneurs use
legally independent economically dependent
A franchisee is generally ______ _____ of the franchisor, but at the same time is ______ ______ on the franchisor's integrated business system
disclosure
A number of states have laws that require franchisors to provide presale _____ to prospective franchisees and require that a ______ document be registered or filed with a state official
personal income
A sole proprietor pays only _____ ______ taxes on the business's profits and is reported as this on the proprietor's ______ ______ tax return
1. owns, all, all 2. easier, less costly
Advantage of sole proprietorship: 1. proprietor ____ entire business and receives ____ of the profits (b/c she or he assumes ____ of the risk) 2. starting is ____ and ____ ___ than starting any other kind of business b/c few legal formalities are required
quality
As a means of controlling _____, franchise agreements typically limit the franchisee's ability to sell the franchise to another party
statutory, case
Both ______ law and ______ law emphasize the importance of good faith and fair dealing in terminating a franchise relationship
termiantion
Causes for ___ might include death and disability of franchisee, insolvency of the franchisee, breach of franchise agreement, and/or failure to meet specified sales quotas
bad faith
Congress has enacted laws that protect franchisees in certain industries, such as automobile dealerships and service stations, from unreasonable demands and ____ _____ terminations of the franchise by the franchisor
quality control
Franchise agreement may specify that the franchisor will provide some degree of ______ ____ so that it can protect the franchise's name and reputation; contract will state that franchisor will establish certain standards for the facility and is permitted to make periodic inspections
good faith, fair dealing
If a court perceives that a franchisor has not acted in ____ ____ and ____ ____ when terminating a franchise, the franchisee will be provided with a remedy for wrongful termination, unless the franchisor's decision was made in normal course of business or if reasonable notice was given
potential liability
If a franchisor exercises too much control over the operations of its franchisees, the franchisor risks what?
advertising
In a franchise contract, the agreement may also require the franchisee to pay a percentage of the franchisor's ______ costs (along with initial fee) and certain administrative expenses
Gadley v. Dept. of Labor
In sum, the Dept.'s construction of assets as business assets is reasonable and consistent with the context and purpose of the bulk sales provision. Purchaser's failure to obtain a clearance certificate rendered it liable for Predecessor's unpaid UC contributions, interest, and penalties, regardless of the Predecessor's repayment agreement; sale qualified as a bulk sale of more than 51% of Predecessor's assets
liability
LP, LLP, and LLC limit the owner's personal __?
S&P Brake Supply v. Daimler Trucks, p. 696
Montana SC affirmed the judgment of a lower court; the court concluded, "the evidence focused on S&P's performance in Yellowstone County and was properly considered." Thus, Daimler had the grounds to terminate S&P's franchise; the court noted that limiting the evidence to only Yellowstone County would not allow a comparison to other dealers where there is only one dealer in a county, reasoning that "when only one franchise exists in a market, expanded data must be considered. Otherwise, a lone franchisee could never be terminated.
franchisor
One licensing another (the franchisee) to use the owner's trademark, trade name, or copyright in the selling of goods or services.
franchisee
One receiving a license to use another's (the franchisor's) trademark, trade name, or copyright in the sale of goods and services.
Holiday Inn v. Hotel Associates, p. 698
Silence can amount to actionable fraud in some circumstances where the parties have a relation of trust or confidence, where there is inequality of condition and knowledge, or where there are other attendant circumstances; House was awarded compensatory damages and the appellate court increased the amount of punitive damages, citing Holiday Inn's "degree of reprehensibility"; The duty of disclosure existed where info is peculiarly within the knowledge of pone part and is of such nature that the other party is justified in assuming its nonexistence
organizational, capital
The franchisor may require that the business use a particular ____________ form and _____ structure; agreement may set out standards such as sales quotas and record-keeping requirements; franchisor may retain stringent control over the training of personnel involved in the operation and administrative aspects of business
franchisees
To protect ______, a state law might require the disclosure of info such as: actual costs of operation, recurring expenses, profits earned, and evidence substantiating these figures
for cause
Usually, the franchise agreement specifies that termination must be "____ ____" and then defines the grounds for termination
distributorships, chain-style business, manufacturing arrangements
What are the three types of franchises
trade secrets
What includes customer lists, plans, research and development, pricing info, marketing methods, production techniques, etc. & extends to both ideas and their expression
trademark
a distinctive mark, motto, device, or implement that a manufacturer stamps, prints, or otherwise affixes to the goods it produces so that they may be identified on the market and their origins made known; once establish (under common law or through registration), the owner is entitled to exclusive use
cure, breach
a franchise agreement may allow the franchisee to attempt to _____ an ordinary, curable ___ within a certain time after notice so as to postpone, or even avoid, termination; however, ______ of honesty & fidelity may be enough to terminate alone
distributorship
a manufacturer (the franchisor) licenses a dealer (the franchisee) to sell its product; covers exclusive territory; ex. automobile dealerships
flexibility
a sole proprietorship offers more ____ than does a partnership or a corporation (free to make any decision she or he wishes concerning the business, including what kind, whom to hire, & when to take vacation)
franchising companies and their franchisees
account for a significant portion of all retail sales in the US; ex. McDonald's, Holiday Inn
franchise
any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright in the selling of goods or services
franchise, contract
b/c ____ relationship is primarily a contractual relationship, it is governed by ___ law
fast-food industry, service-related businesses
chain-style business operations are common in the ____ industry and _______ businesses, such as real estate brokerage firms (Century 21) and tax-preparing services (H&R Block)
personal assets at risk
creditors can pursue the owner's personal assets to satisfy any business debts
pricing arrangements
depending on the nature of the business, the franchisor may require the franchisee to purchase certain supplies from the franchisor at an established price; a franchisor CAN'T, however, set the prices at which the franchisee will resell the goods
secondary meaning
descriptive terms, geographic terms, and personal names that are not inherently distinctive and do not receive protection under the law unless this is acquired; may arise when customers begin to associate a specific term or phrase with a specific trademarked item made by a company; ex. Calvin Klein
Duration of the franchise
determined between parties; sometimes, starts with a short trial period so they franchisee and franchisor can determine if they want to do business or at other times, correlates with term of the lease that is renewable at end of period
lack of continuity
disadvantage that occurs b/c of the death of the proprietor and automatic dissolution of business
strong marks
fanciful, arbitrary, or suggestive trademarks are generally considered to be
wrongful termination
federal and state law attempt to protect franchisees from ______ _______ of their franchises by the franchisors
Franchise Rule
federal gov. regulates franchising through laws that apply to specific industries and through the _____ ____, created by the Federal Trade Commission (FTC)
business premises
franchise agreement may specify whether the ______ ____ must be leased or purchased outright
chain-style business operation
franchise operates under a franchisor's trade name and identified as a member of a select group of dealers than engage in the franchisor's business; generally required to follow standardized or prescribed methods of operation; franchisor insists that franchisee maintain certain standards of performance; franchisee may be required to obtain materials and supplies exclusively from the franchisor
manufacturing arrangement
franchisor transmits to the franchisee the essential ingredients or formula to make a particular product; franchisee then markets the product either at wholesale or at retail in accordance with the franchisor's standards; ex. soft-drink bottling companies
trademark
general rule is that a __ cannot be the same as another's mark or so similar to that confusion might result
franchisor
generally, the termination provisions of contracts are more favorable to who: franchisor or franchisee?
franchising
has become a popular way for businesses to expand their operations internationally w/o violating the legal restrictions that many nations impose on foreign ownership of businesses
registered
if a mark is federally __, the owner may use the symbol ® with the mark; if not federally can use TM
Limited partnership (LP) Limited liability partnership (LLP) Limited liability company (LLC) Corporation
if a sole proprietorship becomes too limited, the owner and any additional investors may then want to establish a more formal organization, such as:
trade dress
image and overall appearance of a product; ex. distinction decor, menu, layout, and style of service of a particular restaurant;
approval
in partnerships, _____ is typically required from partners and from shareholders in a corporation
initial fee or lump-sum
in the franchise contract, the franchisee ordinarily pays an ____ ____ or _________ price for the franchise license (privilege of being granted a franchise)
trade secret
info or a process that gives a business an advantage over competitors who do not know the info or process; does not require registration or filling requirements
2/3, 99%
more than ____ of all US businesses are sole proprietorship; most are small enterprises with ___ earning less than $1 million p/y
injunction
most commonly granted remedy for trademark infringement (to prevent further infringement); can also recover actual damages, profits the infringer wrongfully received from the unauthorized use of the mark, & attorney's fees
notice
most franchise contracts provide that ____ of termination must be given; if no set time for termination is specified, then reasonable time is implied
legal limited liability
necessary for those who wish to raise outside capital
entrepreneur
one who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management
make profits
primary motive of an entrepreneur
intellectual property
property resulting from intellectual creative processes like patents, trademarks, copyrights, etc.; this is a central concern for many small businesses
limited ability to raise capital
proprietor is limited to his or her personal funds and any loans that he or she can obtain for the business; lenders may be unwilling to make loans to sole proprietorships, particularly start-ups, b/c the sole proprietor risks unlimited personal liability and may not be able to pay
generic terms
refer to an entire class of products and receive no protection, even if they acquire secondary meaning; ex. bicycle, computer, aspirin
FTC's 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
sole proprietorship
simplest form of business organization, in which the owner is the business; reports business income on his or her personal income tax return and is legally responsible for all debts and obligations incurred by the business
sell, transfer, approval
sole proprietor can ____ or ____ all or part of the business to another party at any time w/o seeking ____ from anyone else
retirement accounts
sole proprietors are allowed to establish _____ _____ that are tax-exempt until the funds are withdrawn
The Franchise Contract
specifies the terms and conditions of the franchise; spells out the rights and duties of the franchisor and the franchisee; if either party fails to perform its contractual duties, that party may be subject to a lawsuit for breach of contract
trade name
term that is used to indicate part or all of a business's name and that is directly related to the business's reputation and goodwill
1. ease of creation 2. liability of owners 3. tax considerations 4. ability to raise capital
the 4 factors to consider when deciding which form of business organization will be most appropriate for the new endeavor
stated percentage
the franchisor receives a _____ ____ of the annual (or monthly) sales or volume of business done by the franchisee
franchise rule requirements
this includes written disclosures, reasonable basis for any representations, projected earnings figures, actual data, & explanation of terms
state legislation
this varies but often is aimed at protecting franchisees from unfair practices and bad faith terminations by franchisors; may require that a franchisor submit advertising aimed at prospective franchisees to the state for approval; may apply and prohibit certain types of actions by franchisors related to deceptive trade practices; may prohibit termination w/o good cause and require that certain procedures be followed in terminating a franchise to prevent arbitrary or bad faith terminations
trade secrets
to protect this, companies may require employees who have access to these to agree in their employment contracts never to divulge them; may also set up noncompete clause for key employees in contract
trademark infringement
to succeed in a _____ ____ action, owner must show that the defendant's use of the mark created a likelihood of confusion about the origin of the defendant's goods or services
common trademark
trade names are protected under what law, but only if they are unusual and fancifully used; may also be protected under what law if the name is the same as the firm's trademark; ex. Coca-Cola
suggestive
trademarks indicate something about a product's nature, quality, or characteristics, without describing the product directly, ex. Dairy Queen as association between its products and milk
arbitrary
trademarks use common words in an uncommon way that is not descriptive of the product, ex. Dutch Boy as the name for paint
fanciful
trademarks use invented works, ex. Google, Xerox
location of the franchise
typically, the franchisor determines this in a franchise agreement; some contracts give the franchisee exclusive rights, or 'territorial rights" to a certain area; other contracts either specifically state that the franchise is nonexclusive or are silent on the issue of territorial rights
commerce; six
under current law, a mark can be registered: if it is currently in ______ & if the applicant intends to put it into commerce within ___ months
-personal assets at risk -lack of continuity and limited ability to raise capital
what are the disadvantages of the sole proprietorship (2)
trademark infringement
when a trademark is copied to a substantial degree or used in its entirely by another, intentionally or unintentionally
US Patent and Trademark Office (PTO)
where should trademarks be registered for the most protection
secondary meaning
whether this becomes attached to a name usually depends on how extensively the product is advertised, the market for the product, and the number of sales
