Legal Question in Business Law in California

Licensing is cheaper because you get far less. When you franchise you get a great deal of support of various kinds depending on the franchise, but usually including training, advertising, extensive help in getting the franchise location up and running, etc. The objective of a franchise is to create a business location that you own and operate but that is indistinguishable from a company owned location (though many franchises don't actually have any company owned locations). McDonalds is a classic example. In exchange for your investment and franchise fee, they basically set you up in business, everything from the plans to construct the building to the spec's for the kitchen, to the napkins comes from them, through their suppliers, or to their specifications. A license is nothing but the right to use a name, logo, or other company identifying information. Everything else is up to you. Lastly, I know of no companies that offer the option of a license or a franchise. They're all one or the other. There may be some out there I don't know of, but they are few and far between.

California law expansively defines "franchise". To eliminate a franchise, you must eliminate one of the three requirements of franchising:

(1) Compensation. Since getting paid is the primary reason for the transaction in the first place, this requirement cannot be eliminated.

(2) License. Do not require or license a common trade name, trademark, and/or logo.

(3) Control. Reduce your control to a minimum level over the operations and marketing of the business product or services sold, i.e. ensure that the buyer is deemed an independent contractor in its transaction with you.

Thus, you are faced with eliminating either the licensing or control aspect of your business relationship. Even then, there is no guarantee that an unhappy business partner will not later claim a "franchise" relationship to obtain more remedies. A carefully drawn agreement is indispensable to reduce this risk.

My response does not constitute legal advice, as I do not know all of the relevant facts of your case, and I do not legally represent you. Although I strive to make sure the information I provide is generally accurate and useful, you should promptly consult an able lawyer who can learn the unique details of your case more completely in a confidential relationship to ensure that the information I provide, and your interpretation of it, is appropriate to your particular situation.

If you would like to discuss this matter further in a more private forum, please feel free to contact me directly at the email address provided through Law Guru or through my firm�s website located at BealBusinessLaw.com.

There is a good article on the Franchise Foundations website that discusses the differences and pitfalls in the franchise vs. license choice. You can find it at:

www.franchisefoundations.com/franchisevslicense.html

Trying an end run around the franchise laws is always a risky strategy. Consult a franchise attorney.

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

Franchise Attorney