What Are The Requirements Of A Franchise?
In order to qualify as a legal franchise, a business must meet certain requirements as outlined in both state and federal law. An experienced lawyer can help guide you through this process and ensure that your business meets all of the legal requirements of a franchise.
David T. Azrin, Attorney at Law, has decades of experience in handling franchise law matters for clients in the U.S. and around the world. To learn more about his legal practice, call his office in New York at 212-935-3131.
Federal Legal Requirements
According to federal definition, a system is considered to be a franchise when it meets the following three requirements:
- Trademark: The franchisor agrees to give the franchisee the right to use the business’ name or trademark.
- Payment: The franchisor charges the franchisee an initial fee of at least $500 in the first six months for the right to use the name or trademark.
- Significant control or assistance: The franchisor exercises significant control over, or offers significant assistance in, the franchisee’s method of operation of the business.
The system must meet all three requirements. If it does not meet one of these elements, it will not qualify as a franchise at the federal level. In addition, there are a number of exemptions under the federal definition that should be discussed with a skilled franchise law attorney.
State Legal Requirements
Thirteen states require some form of franchise registration, along with slightly different definitions of what qualifies as a franchise and different exemptions. In addition, some states have a minimum initial fee requirement while others may require only a nominal fee. Many states also have business opportunity laws that may come into play. Effective legal counsel can help you navigate this complex web of rules and regulations.