Hidden Franchises

Attorneys address a variety of important issues when forming new business relationships or counseling clients on existing commercial arrangements. This article illustrates how a commercial arrangement, such as a license agreement, joint venture, or consulting agreement, could be a "franchise" subject to regulation under the complex network of federal and state franchise laws.

Ongoing business relationships can be created through a variety of arrangements, including license agreements, distributorships, joint ventures, and consulting agreements. Under these arrangements, legal and business questions must be addressed at the outset by the attorney and client to ensure the relationship complies with applicable law and to increase the probability that the business relationship will be successful and profitable. Although an attorney will tackle many legal questions when the relationship is formed, it is entirely possible that even an experienced practitioner will fail to recognize that the business relationship being created, whether a joint venture, consulting agreement, or licensing agreement, is actually a "franchise" subject to regulation under federal and state law. This issue can be missed or overlooked due to the confusing and far-reaching network of federal and state franchise laws. In fact, it is irrelevant that the parties do not call the business relationship a franchise1 and never intended to create a franchise relationship. If the business relationship satisfies the elements of the federal or state definition of a franchise, it is a franchise and subject to regulation.

Click here to see the full article in The Colorado Lawyer.


Craig J. Knobbe

Chair, Business Section

Craig J. Knobbe