What Every Lawyer Should Know about Franchise Law

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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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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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