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Franchise Law

Goods = Uniform Commercial Code (UCC) designed to protect prospective franchisees from dishonest franchisors and to prevent franchisors from terminating franchises without good cause. 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

Starting A Business

What to Consider: -Creation -Liability -Tax -Capital(the ability to raise it)

Distributorship

a manufacturer (the franchisor) licenses a dealer (the franchisee) to sell its product. Often, a distributorship covers an exclusive territory. Automobile dealerships and beer distributorships are common examples.

Manufacturing Arrangement

the franchisor transmits to the franchisee the essential ingredients or formula to make a particular product. Ex: Pepsi-Cola and other soft-drink bottling companies.

Franchise Termination

-Term-Sometimes, a franchise relationship starts with a short trial period, such as a year, so that the franchisee and the franchisor can determine whether they want to stay in business with one another. At other times, the duration of the franchise contract correlates with the term of the lease for the business premises, and both are renewable at the end of that period. -For Cause: Notice and Opportunity to Cure: defines the grounds for termination. Cause might include, for instance, the death or disability of the franchisee, insolvency of the franchisee, breach of the franchise agreement, or failure to meet specified sales quotas. -A franchise agreement may allow the franchisee to attempt to cure an ordinary, curable breach within a certain time after notice so as to postpone, or even avoid, termination. -Wrongful Termination- litigation involves claims of wrongful termination. Generally, the termination provisions of contracts are more favorable to franchisor than franchisee -Good Faith and Fair Dealing-In determining whether a franchisor has acted in good faith when terminating a franchise agreement, the courts usually try to balance the rights of both parties.

Sole Proprietorships

-simplest form of business -easier and less costly -pays only personal income taxes on the business profits. -flexibility: free to make any decision he or she desires. disadvantages: -he or she bears burden of any loss or liabilities. (any lawsuit against the business or its employees can lead to unlimited personal liability. -creditors can pursue the woners personal assets to satisfy any business debts. -when owner dies, so does the business.

Chain Style Business Operations

a franchise 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 or prescribed methods of operation. Ex: Chipotle Mexican Grill and most other fast-food chains are examples of this type of franchise. Chain-style franchises are also common in service-related businesses, including real estate brokerage firms, such as Century 21, and tax-preparing services, such as H&R Block, Inc.

Franchises

an arrangement in which the owner of intellectual property—such as a trademark, a trade name, or a copyright—licenses others to use it in the selling of goods or services types: distributorship, chain style, and manufacturing arrangement.

Federal Regulation

industry specific standards- Congress has enacted laws that protect franchisees in certain industries, such as automobile dealerships and service stations. These laws protect the franchisee from unreasonable demands and bad faith terminations of the franchise by the franchisor.

Franchise Contract

specifies the terms and conditions of the franchise and 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: -Payment-franchisee ordinarily pays an initial fee or lump-sum price for the franchise license -Business Premises-agreement may specify whether the premises for the business must be leased or purchased outright -Location-the franchisor determines the territory to be served. Some franchise contracts give the franchisee exclusive rights, or "territorial rights," to a certain geographic are -Business Organization-require that the business use a particular organizational form and capital structure. -Sales Quotas-The franchise agreement may also set out standards such as sales quotas and record-keeping requirements -Quality Control-The day-to-day operation of the franchise business normally is left up to the franchisee. Nonetheless, the franchise agreement may specify that the franchisor will provide some degree of supervision and control so that it can protect the franchise's name and reputation. -Pricing-Franchises provide the franchisor with an outlet for the firm's goods and services. 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 cannot, however, set the prices at which the franchisee will resell the goods