Am I A Franchise?

Am I A Franchise?

If You Charge To Use A Trademark or License A Business, Probably Yes, And You Need An FDD.

Don't Try To Evade The Rule. Call Us.

Many businesses discover the high legal costs of setting up a franchise and try to find a way to 'work around it'. Don't. Get set up correctly and in compliance with Federal law, or you will spend years and thousands building up a house of cards, ready to tumble down as soon as an angry or disappointed business colleague hires attorneys like us. You can hire us first and build your operation correctly from day one. Our Denver franchise lawyers can help you put together your Federal Disclosure Document (FDD) and all other documentation required to satisfy Federal franchising regulations.

But Am I Really A Franchise? Really???

You have a logo. You have created over time a product, technique or business. You want to have folks pay you to use your idea and operate here and there using your trademark. Sounds easy enough. What's the catch?

Many in this situation are surprised to discover that, YES, they are a franchise. They are even more surprised, and horrified, to discover that it is Federally regulated and they are not in compliance at all. If you are concerned that you may in fact be operating as a franchise, all is not lost. Call us immediately and speak with one of our Denver franchise lawyers.

If you want to know the details, it's all defined in the Code of Federal Regulations, at 16 CFR 436.2. Here it is:

As used in this part, the following definitions shall apply

(a) The term "franchise" means any continuing commercial relationship created by any arrangement or arrangements whereby:

(1)(i)(A) a person (hereinafter "franchisee") offers, sells, or distributes to any person other than a "franchisor" (as hereinafter defined), goods, commodities, or services which are:

(1) Identified by a trademark, service mark, trade name,advertising or other commercial symbol designating another person (hereinafter "franchisor" ); or

(2) Indirectly or directly required or advised to meet the quality standards prescribed by another person (hereinafter " franchisor" ) where the franchisee operates under a name using the trademark, service mark, trade name, advertising or other commercial symbol designating the franchisor; and

(B) (1) The franchisor exerts or has authority to exert a significant degree of control over the franchisee's method of operation, including but not limited to, the franchisee's business organization, promotional activities, management, marketing plan or business affairs; or (2) The franchisor gives significant assistance to the franchisee in the latter's method of operation, including, but not limited to, the franchisee's business organization, management, marketing plan, promotional activities, or business affairs; Provided, however, That assistance in the franchisee's promotional activities shall not, in the absence of assistance in other areas of the franchisee's method of operation, constitute significant assistance; or (ii)(A) A person (hereinafter "franchisee") offers, sells, or distributes to any person other than a "franchisor" (as hereinafter defined), goods, commodities, or services which are:

(1) Supplied by another person (hereinafter "franchisor" ), or (2) Supplied by a third person (e.g., a supplier) with whom the franchisee is directly or indirectly required to do business by another person (hereinafter " franchisor" ); or (3) Supplied by a third person (e.g., a supplier) with whom the franchisee is directly or indirectly advised to do business by another person (hereinafter " franchisor" ) where such third person is affiliated with the franchisor; and

(B) The franchisor: (1) Secures for the franchisee retail outlets or accounts for said goods, commodities, or services; or (2) Secures for the franchisee locations or sites for vending machines, rack displays, or any other product sales display used by the franchisee in the offering, sale, or distribution of said goods, commodities, or services; or (3) Provides to the franchisee the services of a person able to secure the retail outlets, accounts, sites or locations referred to in paragraph (a)(1)(ii)(B) (1) and (2) above; and (2) The franchisee is required as a condition of obtaining or commencing the franchise operation to make a payment or a commitment to pay to the franchisor, or to a person affiliated with the franchisor.

(3) Exemptions. The provisions of this part shall not apply to a franchise: (i) Which is a "fractional franchise"; or (ii) Where pursuant to a lease, license, or similar agreement, a person offers, sells, or distributes goods, commodities, or services on or about premises occupied by a retailer-grantor primarily for the retailer-grantor's own merchandising activities, which goods, commodities, or services are not purchased from the retailer-grantor or persons whom the lessee is directly or indirectly: (A) required to do business with by the retailer-grantor, or (B) advised to do business with by the retailer-grantor where such person is affiliated with the retailer-grantor; or (iii) Where the total of the payments referred to in paragraph (a)(2) of this section made during a period from any time before to within 6 months after commencing operation of the franchisee's business, is less than $500; or (iv) Where there is no writing which evidences any material term or aspect of the relationship or arrangement. (4) Exclusions. The term "franchise" shall not be deemed to include any continuing commercial relationship created solely by: (i) The relationship between an employer and an employee, or among general business partners; or (ii) Membership in a bona fide "cooperative association"; or (iii) An agreement for the use of a trademark, service mark, trade name, seal, advertising, or other commercial symbol designating a person who offers on a general basis, for a fee or otherwise, a bona fide service for the evaluation, testing, or certification of goods, commodities, or services; (iv) An agreement between a licensor and a single licensee to license a trademark, trade name, service mark, advertising or other commercial symbol where such license is the only one of its general nature and type to be granted by the licensor with respect to that trademark, trade name, service mark, advertising, or other commercial symbol. (5) Any relationship which is represented either orally or in writing to be a franchise (as defined in this paragraphs (a) (1) and (2) of this section) is subject to the requirements of this part. (b) The term "person" means any individual, group, association, limited or general partnership, corporation, or any other business entity.

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