Franchising: what is it, really?

Lizette Pirtle — Tue, 07 Jul 2009 16:04:28 +0000

The Federal Trade Commission has created criteria to determine whether or not a business meets the definition of a franchise under their Franchise Rule. They basically look at three factors: granting of trademarks, control over the new location or training provided, and payment of funds. To know whether your business is or will be deemed a franchise ask yourself the following questions:

1. Trademark

Do you want to grant the right to others to distribute goods and services bearing your trademark, service mark, trade name, advertising, or other commercial symbol?
In other words, do you want the new locations to use your business name and display your logo?
Are you okay with the locations not trading under your name yet offering your products and services?

2. Significant control or assistance

Do you want to have significant control over the way others operate their businesses? For example, do you want to approve the site, the design and the appearance of each location?
Do you want to dictate the operating hours, the accounting practices as well as other business practices?
Do you want to ensure that all locations follow and use the same promotional campaigns?
Or, are you okay with every location doing their own thing, choosing whatever they want to look like, serving customers whenever and however they chose?

Do you want to provide assistance to the owners of the new locations?
For example, do you want to provide training programs that will teach others how to obtain and serve clients?
Do you want to provide operations manuals detailing how others should operate their businesses?
Or, are you okay with them figuring out how to run the business as they go?

3. Required Payment

Do your want others to pay you an upfront fee larger than $500 to access your knowledge and open a location?
Do you want others to pay you ongoing fees as royalties, training fees, bookkeeping charges or other payments for services, rent, or even from product sales?

If you are considering entering or have entered into a business relationship which involves ALL three of these elements, you are contemplating or are operating as a franchise. You can call it what you want but by the Franchise Rule as specified by the Federal Trade Commission deems your business a franchise. And, as a franchise you are required to provide a disclosure document to those people who wish to enter into a business relationship with you (prospective franchisees). If you fail to provide such a document, you are subject to fines up to $10,000 per violation at the federal level. What’s worse, in some states, violation of franchise laws is considered a felony.

Franchise Offerings Using the Internet

Lizette Pirtle — Tue, 03 Feb 2009 22:04:42 +0000

When offering franchise opportunities using the Internet one must comply with state regulations requiring the posting of a disclaimer that specifically lists the states in which the company is NOT allowed to offer franchises.

These regulations can be summarized as follows:

1. If a franchise company has a current FDD (Franchise Disclosure Document) and has a federal trademark but is not registered in any states requiring a franchise registration or exemption filing, the disclaimer must list the states of:

· California (RS)

· Connecticut (ES)

· Florida (ES)

· Hawaii (RS)

· Illinois (RS)

· Indiana (RS)

· Kentucky (ES)

· Maryland (RS)

· Michigan (RS)

· Minnesota (RS)

· Nebraska (ES)

· New York (RS)

· North Dakota (RS)

· Rhode Island (RS)

· South Dakota (RS)

· Texas (ES)

· Utah (ES)

· Virginia (RS)

· Washington (RS)

· Wisconsin (RS)

RS= Registration State

ES= Exemption Filing State

2. If a franchise company has a current FDD (Franchise Disclosure Document), is NOT registered in any states requiring franchise registrations or exemption filings and does NOT have a federal trademark, the disclaimer must list the states of :

· California (RS)

· Connecticut (ES)

· Florida (ES)

· Georgia (NT-ES)

· Hawaii (RS)

· Illinois (RS)

· Indiana (RS)

· Kentucky (ES)

· Louisiana (NT-ES)

· Maine (NT-ES)

· Maryland (RS)

· Michigan (RS)

· Minnesota (RS)

· Nebraska (ES)

· New York (RS)

· North Carolina (NT-ES)

· North Dakota (RS)

· Rhode Island (RS)

· South Carolina (NT-ES)

· South Dakota (RS)

· Texas (ES)

· Utah (ES)

· Virginia (RS)

· Washington (RS)

· Wisconsin (RS)

RS= Registration State

ES= Exemption Filing State

NT-ES= No Trademark in Place Exemption Filing State

EXAMPLE:

A franchise company from Detroit, MI has a current FDD and a Trademark. In addition they have registered with the states of Michigan and Indiana and have filed for exemption in the states of Florida and Texas. This company’s disclaimer in their website must list the following states states of those in which they are NOT making an offer:

· California (RS)

· Connecticut (ES)

· Hawaii (RS)

· Illinois (RS)

· Kentucky (ES)

· Maryland (RS)

· Minnesota (RS)

· Nebraska (ES)

· New York (RS)

· North Dakota (RS)

· Rhode Island (RS)

· South Dakota (RS)

· Utah (ES)

· Virginia (RS)

· Washington (RS)

· Wisconsin (RS)

As they either register or file for exepmtions in different states they can delete that state from the disclaimer.

Small Biz Franchise Blog » Franchise Disclosure Document

Franchising: what is it, really?

Franchise Offerings Using the Internet