Suppose a business client comes to you requesting that you draft a licensing, dealership or distributorship agreement to allow another business owner to offer his or her business’ trademarked products. Without a basic understanding of franchise law, you may miss the warning signs that the proposed business arrangement may create a franchise. Unfortunately, under federal law, as well as in California, it does not matter what you call an arrangement when you draft the agreement: if the elements of a franchise are present, it is a franchise. Franchise sellers must comply with extensive pre-sale registration and disclosure requirements or face severe penalties. Attorneys who make such a mistake will have unhappy clients when state regulators come knocking or when a franchisee sues for rescission. To avoid such a problem, every business lawyer should familiarize himself or herself with the basics of franchise law.
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