Franchising - a business relationship in which a franchisor grants to a franchisee the right to operate a business selling services or products developed by the franchisor – continues to grow as a business model. Franchising dominates certain industries and is becoming more popular in others. Unlike a buyer-seller relationship, franchising is an interdependent relationship in which success for either party depends, to a large extent, on the success of the other.
In a franchise relationship, the franchisor and franchisee pool their resources and capabilities. The franchisor contributes the business plan, initial capital and intellectual property including trademarks, know-how and experience and the franchisee contributes supplemental capital, operating experience and hard work.
Due to perceptions that franchisors often engaged in abusive conduct and that franchisees needed protection, Federal and state laws emerged relating to franchise registration/disclosure and the sale of business opportunity ventures which now govern every stage of the franchise relationship: offers and sales, operation, renewal, termination and succession.
In addition to complying with laws explicitly regulating franchises, parties to a franchise arrangement must contend with a wide variety of legal and business issues: antitrust, securities and corporate law, federal and state tax law and laws relating to the termination and renewal of franchises.