Franchises Law

The US franchises law is quite complex, as it has federal and state components and it varies from state to state. The Federal State Commission, along with corresponding state agencies, governs franchising in the US. The common franchising rules set up by the FTC apply to all the franchises all over the country. The state rules apply if the franchisees are residents of that state or the franchise will be established in that state or the franchise sale happens in that state.

Federal Franchises Law

According to the federal franchise law, a franchise has three elements namely,

  • Trademark
  • Significant Control
  • Required Payment

A significant control is exerted by the franchisor. The various areas of significant assistance or control include but not limited to,

  • Fixed techniques of production or execution
  • Mandated training programs
  • Specific site or property appearance or design
  • Fixed operating hours
  • Specific accounting practices

The franchise can sell products bearing the trade name, logo, trademark, commercial symbol or service mark of the franchisor. The franchisee must pay minimum USD500 to the franchisor before opening the franchise or within six months of opening it. Other required payments include, Training fees, Royalties, Franchise fees, and Service payments.

State Franchises Law

The common elements of a franchise according to the state franchise laws as followed by most US states are,

  • Marketing Plan or Community of Interest
  • Trademark Association or Trademark License
  • Required Fee

Categories of Franchises Law

The franchises are regulated by three categories of laws namely,

  • Disclosure Laws – Disclosure laws govern the pre-sale disclosures, prohibited practices, and franchise sales cooling-off period.
  • Relationship Laws – Relationship laws determine the termination grounds, termination cure and notice periods, non-renewal grounds, and equality in the treatment of the franchisees.
  • Registration Laws – Registration laws oversee how the franchise, sales people and advertising are registered.

Violations

The US franchise law prohibits the selling of unregistered franchises.  Misrepresenting facts about the business opportunity to the prospective franchisees, non-renewal or illegal termination of the franchise, not providing the UFOC at the required time and not disclosing everything required in a UFOC are violations under this law.


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