Reprinted and/or posted with the permission of Daily Journal Corp. (2011).
Much has been written about the phenomenon known as “inadvertent franchising” in the U.S. — a situation that arises when a company, acting innocently enough, thinks it is granting a simple license but actually crosses the line into franchising. Inadvertent franchising can result in claims against the franchisor for rescission and damages, and can even result in individual liability for control persons.
While most articles on this topic focus on domestic inadvertent franchising, international franchise laws can be just as complex as U.S. franchise laws, and the implications of running afoul of international franchise laws can be just as severe. In fact, in many countries, there are few, if any, exemptions from these obligations. As a result, when a company considers international expansion, it is particularly important for the company’s officers and advisors to be aware of which countries regulate franchising, what these laws require and what the implications are for violating them.
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