Franchise Update: How To Avoid Becoming an Accidental Franchise

Maybe you wanted to avoid creating a franchise, or just accidentally created one. Regardless, here's the simple fact: somehow, your license agreement, joint venture, distribution agreement, sales agent agreement, or business relationship became a franchise.

At this point, you may be saying, "But we went the license agreement route," or "We all agreed our relationship wasn't a franchise." Alternatively, you might be asking yourself, "Do the franchise laws seriously apply to my relationship - and what does that mean?" or "How could this happen? My attorney drafted the agreement for us."

The network of federal and state franchise laws is complex, far-reaching, and inconsistent. And the applicability of these laws to your business relationship basically boils down to one question: Does your business relationship satisfy all of the definitional elements of a "franchise?" This is important because it is irrelevant that your business relationship is not called a franchise; that the parties never intended to create a franchise relationship; or that the parties expressly agreed that their relationship was not a franchise. If the relationship satisfies the elements of the federal or state definition of a franchise, it is a franchise - and subject to regulation under the franchise laws.

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Craig J. Knobbe

Chair, Business Section

Craig J. Knobbe