Legal Question in Business Law in California

A distributorship is a restricted right to essentially be a wholesaler of a particular company's products, usually in an exclusive or restricted territory. A classic example is a liquor distributorship or a car dealership. Distributorships always have to do with sale of goods and may be wholesale or retail, though there are probably more distributorships in the wholesale arena than retail. Franchises are very similar, but generally have to do with services as the primary purpose of the business, or where the preparation of goods is done by the franchisee as a service or incidental to the service. Classic examples are Merry Maids, Roto-Rooter and McDonalds. They actually have more similarities than differences in that the parent entity provides some degree of exclusivity as to territory, business management assistance (and in fact often imposes certain business policies and practices), advertising and promotion support, and of course brand name rights, in exchange for fees that are calculated in various ways but far more often than not include a cut of the revenue stream.

In addition to the information in the other answer, some distributorships may cross the line and become illegal, disguised franchises. If you have any questions about this issue, consult with a competent franchise attorney.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

We have a franchise expert here on LawGuru who will hopefully step in and say a few words about your question, but in the meanwhile, let me say that these concepts seem to overlap quite a bit, and you can also add the term "dealership" to the mix. A distributorship can be, and often is, a franchise. The main characteristic of a distributorship seems to be that it is engaged in trade at a wholesale level, and does not primarily deal with end-users or consumers.

A McDonalds, on the other hand, would be a franchise that isn't a distributorship.

"Franchise" is defined for many legal purposes in Section 31005 of the California Corporations Code, and some related terms in following sections.