What is the difference between franchising vs. licensing a business? The starting point in franchising vs. licensing a business analysis is to the legal aspects, then consider the business aspects. In considering the legal aspects, start with the following premise is that both options. When you bring someone into the business (or allow them to use with your company / brand) this transaction is generally a regulated activity, subject to substantial penalties for noncompliance. This leadership legal principle, coupled with the business aspects of the sale of a franchise license vs (see below) to answer most of the franchise vs. license issues. Advice from a competent attorney is essential franchise. BACKGROUND & COMMERCIAL LAWS of franchise to exist Why Regulation? The government because maltreatment documented past, where tens of thousands of people lost their entire fortune by investing in nonexistent or worthless business endeavors, has devised two main mechanisms of consumer protection: (1) Disclosure franchise registration laws, and (2) business opportunity laws. be signed, the thrust of this legislation is to require sellers to potential buyers have enough information before the sale of so-informed investment decisions before money changes hands, long-term contracts can be made, and taken with significant financial commitments. paid under Federal Regulations, a Franchise Disclosure Document (FDD), the 23 chapters and a hundred or more pages long and must be prepared to get to any potential buyer at least 14 calendar days before the contract is signed or money. It does not matter what the parties in terms of contracts or other documents are used to describe their relationship. For example, the contract may call the relationship a license, a dealer, a joint venture, independent contractors, etc., or the parties can form a limited partnership or a company. This is completely irrelevant in the eyes of state regulators, particularly the enforcement division of the Federal Trade Commission (FTC). Its focus is not on semantics, but on whether a small number of defining elements are present or not. Today the industry is governed by a complex web of regulations that differ from the Federal Republic level, the state level and vary from state to state. Companies or individuals who call it say, a “license waived” legislation are delusional and wrong for at least three reasons: (1) Common Sense – if it were really that easy to do, everyone would Sun The 3,000-plus are companies that franchise are not stupid. Many of them can afford the best legal talent available. It is no coincidence they are all franchising and licensing not, (2) Even if the relationship is not regulated under franchise law, the business opportunity laws (see below) apply, and compliance with this is much more expensive than going to the franchise route, and (3) Any analysis must be federal and state laws. All this reminds me of some financial planners who have advised U.S. tax registration is not required under its interpretation of the American Constitution. It just is not so. Actually, it only works until the IRS catches up. The “licensing avoids Franchise Regulation” Spin (not surprisingly, is not accepted in the legal community) also works only until the company gets caught. The logic (not) goes like this: Licensing arises under contract law, franchise law and therefore no franchise law does not apply. Sound is exactly like the “you have to submit a tax return because tax laws do not apply” argument. Here is a real example. A “licensing agent” prepared dealer license agreement and ignoring the FTC Franchise Rule disclosure requirements. The dealers were angry and hired a lawyer to dispute the company, not surprisingly, sued for selling illegal, disguised franchises. It cost the company $ 750,000 in court in Federal Court to answer the question “Is this a franchise agreement?” It is always a very expensive question to answer. The attempt an end run around the franchise disclosure laws by them, a “license” is a cheaper way to go next. But it’s not a question of if you are caught, the only question is when. ready insane amounts down the road, disguised as the franchise for what it really is challenged to spend. In 2008 a case of Otto Dental Supply, Inc. v. Kerr Corp. 13/02/2008, 2008 WL 410 630 (ED Ark.) vs. disguised other franchise was a license in question. The licensor he claimed only one license sold, do not apply any franchise and franchise laws. He made a motion for summary ruling on the case to have thrown out of court. The Federal Government Eastern District Court ruled against the licensor and ordered the case continued. He said that the license was really a franchise system has to decide on a jury. Juries apply common sense to the simple definition of elements of a franchise. They are not by semantic arguments like “swayed licensing, resulting from contract law, franchise law and therefore not franchise law is not applicable.” Another expensive franchise license vs learning lesson. This is not to say a licensing company is not a viable option abroad (from USA) transactions, is where U.S. laws do not apply – but these are a very small minority. Most transactions and contracts covered by the U.S. activities and residents, the franchise vs. license question is easily answered. Even within the U.S., there are some cases in which the relationship call for a “license” makes sense. Years ago, the sale of a business education franchise professionals to university called her a license agreement. To comply with applicable laws, a full franchise disclosure document was prepared and registered. called from a purely marketing reasons, the “franchise agreement” was a license agreement within the franchise disclosure document. The list of required defining elements is quite short, and although some franchise exemptions and exceptions available to the franchise legal framework has been developed to such relationship in either a franchise or business opportunity box drawer. Normal licensing agreements contain certain “control” provisions (right to audit, require reports, mandate suppliers, etc.) and the presence of control or assistance provision (operations manual, training, location, or other support) is enough to satisfy these elements the rule. In fact, says the title of the FTC rule of all: “Disclosure requirements and prohibitions concerning franchising and Business Opportunity Ventures.” So, the focus must be to operate better on the field, not avoid, like, either with box. The franchise BOX – Regulation by the FED we consider the franchise box. Under FTC rules, which take effect in 1979, was a thick document (now called the Franchise Disclosure Document) must be prepared and get out to potential buyers for at least 14 calendar days before any money is paid or contracts are signed. This document now contains 23 articles or chapters of information, as well as current financial report and a copy of the current contracts used. As already mentioned, this document was developed to interested enough pre-sale information about the company, its financial situation, the proposed contract, investment requirements, trademark, exclusive territories, etc., so informed decisions can be taken before the long-term contracts are signed. To have companies that federal law violation trial, authorizes the FTC Act, the Commission on civil penalties of up to $ 10,000 for each violation of its rule to restore, plus injunctive relief, consumer redress (full refund, contracts terminate), etc. Since each sale can involve multiple violations of various regulatory provisions, these fines can be substantial, and by far the cost of doing it right the first time. Selling a disguised franchise (a franchise illegal) as a “license” can the most expensive mistake that makes a company at all. One has only to consult the franchise registration filings by several states with a significant number of companies to see fall into this trap. She started selling “licenses” that save on false advice, in a futile attempt to money. Then, they either sued for the sale of an unregistered or illegal franchise. Or they finally competent legal advice, what they really have sold franchises are disguised, although as a “license.” The state authorities require them to offer full rescission rights (cancel the license, refund all money that the owner is changed) to all people who sells them “have licenses. Defenses such as “we do not sell, franchise, we sold only one license” or “There is a license and a license, resulting from contract law, franchise law does not just do not work and never”. In the end, they pay much more to have it done as it should have from the beginning. And for those disguised franchises, which generally exert their “Let’s from this license” rights to them to get by the regulators, the end of the seller until he them into the business with free plus all the money to reimburse them. Not a pretty picture. State regulation of franchising, because the regulation of franchising in the federal and state level, the effect of government regulation are considered. The FTC Rule sets minimum standards and is valid in all states, unless a specific state sets higher standards, then that state law applies. In 1971, eight years before the FTC Rule was enacted, the state of California was the first franchise registration disclosure law, if a franchise registry before franchises can be offered (ie, advertising is required) to adopt or sold. The California Franchise Investment Law was in response to a wave of complaints from consumer franchise. Other states soon followed California’s lead, which had a situation where franchise companies follow different rules in each franchise registration state. To overcome these difficulties and achieve a unified format, a group of commissioners from various States Securities took a Uniform Franchise Regulation, effective in 1977, when the Uniform Franchise Offering Circular (UFOC) format known. All states require franchise registration followed the UFOC format, even a thick document with 23 chapters of information. None of them accepted, which was then known as the Basic FTC Disclosure Document. In order to facilitate the obvious plight of UFOC vs. FTC format, the company may use the FTC UFOC format as an alternative to its Basic Disclosure Document. In 2007, the FTC has its own version of the UFOC format, such as the Franchise Disclosure Document or FDD known. The FDD format is the preferred format in all the states beginning first July 2008. FRANCHISE SUMMARY BOX Bottom line on the franchise box: With the creation of a single franchise disclosure document (at a price of about $ 30,000), a company satisfies the federal and state requirements is positioned to offer and sell franchises in the United States. Although certain state-specific information and disclosures in the minority of states with franchise registration-review process may be required, this can be generally carried out in a couple of extra hours per state. The business opportunity BOX Now let’s consider the business opportunity field. On the state level, there are about 24 states regulate and register business opportunities. Unlike the franchise-Box there is no such thing as a uniform business opportunity disclosure format. Business opportunity, rules and regulations differ in each business opportunity registration state. Many of these countries also have a “cooling off” period, usually a few days after the sale, where buyers can change their mind for any reason and receive a full refund. For a company that would be the business opportunity route two different documents have to be prepared, and provided: the FTC Basic Disclosure Document (if the business opportunity of the FTC fits the definition of a business opportunity) and a state more abbreviated business opportunity disclosure document can do it. Also, different time limits must be observed: the FTC’s 14 calendar days before, and a business opportunity for reflection state. Bottom line is the business opportunity field – if you are a lawyer with a business opportunity or “licensing” client, get ready for hundreds of billable hours, you have just landed is great. But if the business pay the legal bills, it will go for much less money to the franchise route to be. Prepare a single, Franchise Disclosure Document, please register in one state or two to start to expansion efforts, and you’re done, essentially. There are other factors in the franchise vs. business opportunity analysis, including questions of liability (definitely a higher risk in the franchise arena) but these are beyond the scope of this article is not intended to provide legal advice to consider. The company should contact the appropriate legal counsel informed about the specifics of their particular situation before making a decision. The business aspects of franchising VS. Licensing A BUSINESS The business aspects of the franchise vs. license and business opportunity options are relatively straightforward. It all boils down to image from a marketing standpoint. From the perspective of credibility that makes your company wants to stand up to the toe to toe with the likes of McDonalds, Radio Shack, H & R Block and other franchised household names? These are caused mental images in my head, if an average consumer hears the word franchise, along with well-known, highly advertised slogans like “you’re in business for yourself, but not themselves,” “complete training,” “support, where and when you need it “to start service, etc. This, coupled with the complete package of training and ongoing support services provided by franchised businesses, a franchise makes it an attractive commodity in the eyes of potential buyers and an easier sale. The same goes for companies, the first “license” and then switched to selling “franchises sold.” These companies, they report considerable interest, and far more requests in the supply of “franchise” compared to when they “offered licenses.” So to answer, even from a business standpoint, the franchising vs. licensing a business question is easy. Furthermore, and as stated above, a “license” is almost always a franchise in the guise of creating a ticking time bomb significant legal problems if the FTC rule (and the state registration laws, not franchise) followed. The business aspects of franchising VS. Business Opportunities Business Ventures chance when, on the franchise than suffer some image problems that translate into marketing issues are difficult. If you ever need proof to show only a business opportunity or expo. You will find a variety of fly-by-night opportunities such as worm farming can be seen in backyards, exotic plants in glass bowls, condom vending machines (not a bad idea these days) and raised as all the fast talking, high pressure promoted seller. Does your company really want to be associated with these companies directly and awareness project? Poor image with the fact that business opportunity ventures typically provide little training and no ongoing support so that they coupled a much more difficult sale to prospective customers. In a business opportunity, the buyer is just thrown a ball, and it is entirely up to them how to run with him. FINAL COMMENTS in both legal and business point of view, the franchise vs. license is an easy choice to make. Doing It Right the first time money and important legal headache to save on the road. The individuals, distributed over the internet that (via claim very unprofessional looking web sites), which merely calling the relationship a “license” only the sale of a future process. Not looking through the lens of an expert with nearly three decades, has seen first-hand experience the devastation cause this “hidden” franchise. Instead, they will try to just make money – at your expense. From the basic, common sense perspective, if it looks like a duck, talks like a duck and walks like a duck -. . . It is a duck. © 1990-2009, Kevin B. Murphy, BS, MBA, JD – All rights reserved.

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