Introduction: What is a franchise?

• Author: Rupert M. Barkoff, Andrew C. Selden

Contents xvii

Introduction

xvii

What is a “franchise”?

This book is about franchises: it provides an overview of several key areas of law

as they relate to franchises and the business of franchising.

The starting point for Fundamentals of Franchising therefore must be a defi-

nition of the subject: what exactly is a franchise?

The word “franchise” has a statutory definition in dozens of different state

laws on a variety of different franchise-related subjects; it is defined in a critical

Federal Trade Commission regulation; it is used in business to describe a wide

variety of commercial relationships; and it carries a popular connotation in the

media and in our daily lives.

For our purposes, at its most elementary level, a “franchise” is a business

relationship between a franchisor, a party that grants a franchise, and a franchisee,

the party to whom the franchise is granted, under which the franchisee is allowed

to conduct a business offering goods or services to others. Most often, the

franchisee’s establishment and operation of the franchised business is closely gov-

erned by the terms of a franchise agreement and identified by one or more brands

provided by the franchisor. The franchisee almost always pays an array of fees (or

other consideration) to the franchisor.

The state statutes that regulate the offer and sale of franchises (the “registra-

tion and disclosure laws”) and those that regulate various aspects of the ongoing

franchise relationship, including its renewal, transfer, and termination (“relation-

ship laws”), all have definitions of “franchises” that are subject to the statute.

These definitions differ from law to law and from state to state, sometimes sub-

stantially, and must be consulted individually in particular cases. But, for the most

part, they can be paraphrased for at least a broad, categorical understanding of

what we mean by the term “franchise” for purposes of this book.

A “franchise” may be thought of for purposes of this book as a commercial

transaction or relationship that includes all four of the following definitional ele-

ments:

•One party grants another the right to offer or sell goods or services,

•Using the grantor’s brand identification (trade- or servicemark, logo, etc.),

trade name, or advertising,