Legal Question in Securities Law in California

new franchisor

Our real estate company is receiving our franchise license next month. Right now, I am paying an employee $2,000/month OR 10% of net company profits (whichever is greater). He plays an integral part in our business. I want to make sure that this payment relationship we have can continue. As we are an S-corp, he does not have any ownership or company stock. Will this violate any laws? Since the laws a franchisor has to follow is a lot different from a non-franchised business owner, I want to make sure I am not doing anything against the law. Thanks so much for any help you can provide


Asked on 6/28/08, 8:58 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: new franchisor

From the facts given, it sounds to me as though you are not about to become a franchisor; you will be a franchisee.

You need to read and understand your franchise agreement, especially what it says about employee selection, training, supervision and compensation.

Also review the Department of Real Estate requirments on the same topics. Keep in mind that there are limitations on unlicensed employees sharing in commissions.

Note that most franchise laws are designed to protect the franchisee from abusive practices by the franchisor, not the other way around, but you still have to understand and abide by the terms of the franchise agreement.

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Answered on 6/29/08, 3:50 pm


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