Legal Considerations In Expanding A Business Through Franchising

The Metropolitan Coporate Counsel:

Franchising can be an effective strategy to grow a business; however, one must consider its attendant legal implications. While, at first glance those legal issues may appear daunting, with proper guidance and some strategic planning, they can be managed in a relatively straightforward and efficient manner.

As an initial matter, it is important to understand what relationships fall within the definition of a ‘franchise.’ Generally, the following elements are required for a franchise relationship to exist: (1) the franchisee’s business is substantially associated with the franchisor’s trademark; (2) the franchisor exerts significant control over the franchisee’s business or there is significant interdependence between the franchisee’s business and the franchisor’s system; and (3) the franchisee is obligated to pay money to the franchisor within a specific time frame. If the contemplated relationship meets this definition, it will be subject to the laws that regulate franchising.

In order to franchise a business, at a minimum, the following are necessary: (1) a registered trademark; (2) a franchise agreement; and (3) a franchise offering circular.

Carry on reading: Registering A Trademark.