Franchising in The United States

Definition of Franchising
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In the United States, the Federal Trade Commission and state regulatory agencies have developed a formal set of disclosure requirements and franchise-specific prohibitions that franchisors must follow in their relationships with their franchisees. To determine whether or not a business meets the definition of a franchise, the Federal Trade Commission applies three definitive criteria that are summarized below:

1. Trademark -- According to FTC Rule 436, "This element will be satisfied only when the franchisee is given the right to distribute goods and services which bear the franchisor's trademark, service mark, trade name, advertising, or other commercial symbol." Note that it is the right, not the obligation, which triggers the first element of the franchise definition.

2. Use of "significant control or assistance" -- FTC Rule 436 lists 18 specific criteria in the area of significant control or assistance, any one of which may trigger the second element of the definition. Some of these elements include site approval, site design or appearance requirements, specified hours of operation, accounting practices, personnel policies, required promotional campaigns, training programs, and the provision of a detailed operations manual.

3. Required Payment -- According to Rule 436, "The franchisee must berequired to pay the franchisor (or an affiliate of the franchisor), as a condition of obtaining or commencing the franchise operation, a sum of at least $500 . . . within six months. . ." Required payments include franchise fees, royalties, or even from training fees, bookkeeping charges, payments for services, rent, or even from product sales (if they are sold above a bona fide wholesale price).

For additional information on legal aspects of franchise rules and regulations please visit Francorp's corporate site, www.francorp.com.