Could a Franchise Be a Viable Opportunity for a Michigan Entrepreneur? (Part 1) -- General Overview of Franchises
In certain situations, a franchise may be a good opportunity for a Michigan entrepreneur to start his or her own business. However, anyone considering buying a franchise should understand exactly what they are getting into. Depending on the situation, a franchise could be a good business opportunity, or it could be a financially disasterous nightmare. I always advise clients who are considering franchise opportunities to proceed with maximum caution. Needless to say, anyone who is considering buying a franchise should consult with a competent Michigan franchise lawyer before signing any paperwork.
This post is the first in a series of posts in which I will discuss the basics of federal and Michigan franchise law for entrepreneurs. My goal is to provide a basic overview so that those Michigan entrepreneurs who are considering purchasing a franchise will have a beginning resource to help guide them in their deliberations.
The sale and administration of franchises are governed by both federal and state law. Under federal law, there are two types of franchises: (1) package and product franchises; and (2) business opportunity ventures. The name that the parties give to their relationship is irrelevant in determining whether it is a franchise, and which type of franchise it is.
Package franchises are those in which the franchisee adopts the business format established by the franchisor, including the franchisor’s trademark. Typically, the franchisee will operate his or her outlet under a name that uses, in whole or in part, the franchisor’s trademark, and will distribute goods or services that are required to meet the franchisor’s quality standards. Familiar examples are fast food outlets, automatic transmission centers, motels, tax preparation services, and employment agencies.
Product franchises are those in which the franchisee distributes goods produced by the franchisor, or under the franchisor’s control or direction, or that bear the franchisor’s trademark. Typical examples are automobile dealerships, gasoline stations, and soft drink bottlers.
In my next post, I will discuss the three characteristics that must be present in a relationship for either a package or product franchise to exist.
