What is a franchise?

In order to understand business structures that are not franchises, it may help to define what a franchise is. The generally accepted definition, consistent with the FTC Franchise Rule and state franchise laws, includes the four elements required for a business to qualify as a franchise:

1. A franchisor must grant a franchisee the right to offer, sell, or distribute goods or services.
2. A significant association exists between the franchisee's business and the franchisor's trademark.
3. Franchisee is required to pay a fee for entering into the relationship.
4. The franchisor and franchisee either share a community of interest in the offer, sale or distribution of the goods or services, or the franchisor prescribes a marketing plan for the goods or services by imposing significant controls over, or provides significant assistance with the franchisee's operation of the business.

It stands to reason that if any of the above four elements are missing the business is not a franchise. However, state laws also factor into whether a business is considered a franchise. Because franchise laws from one state to another are not uniform, a business that is considered a franchise in one state, may or may not be considered a franchise in another. Understanding the nuances of franchise law is best left to an experienced franchise attorney.

Read about the advantages of franchising

In an effort to avoid the complexity of franchise regulations and added expense, you may want to consider other product distribution methods as alternatives to franchising. Our attorneys can discuss these options in detail and how they may correspond with your business objectives.