Frachises

JOINT VENTURES

· Joint Venture: A business venture where two or more persons or entities combine their interests in a particular enterprise and agree to share in the losses or profits equally or in proportion to their capital and asset contributions.

· A joint venture resembles a partnership and is taxed like a partnership. However, there are some differences:

· Joint venturers have less implied and apparent authority because the activities of a joint venture are more limited, as a maffer of law, than those of a partnership.

· The death of a joint venturer generally does not terminate the joint venture.

· Joint venturers owe one another the same fiduciary duties owed to partners.

· Because joint ventures sometimes overlap with one or more of the joint venturer's other business, conflicts of interest need to be disclosed and dealt with openly.

· Duration: usually lasts for the life of a particular project or activity. Otherwise, terminable by will unless otherwise agreed.

SYNDICATE

· A group of individuals coming together to finance a particular project, such as a building or purchase of a sports franchise.

JOINT STOCK COMPANY

· A hybrid of a partnership and corporation. Has transferable shares, usually managed by directors and officers, and it can have a perpetual existence. Property is generally held in the name of the owners, and shareholders have personal liability, and the company is not treated as a separate entity.

BUSINESS TRUST

· A true “trust” document which sets forth the rights and interests of the beneficiaries and obligations of the trustees. The ownership of the property goes to the trustees, and profits are distributed to the beneficiaries. This is a device which has been receiving negative attention from the IRS.

COOPERATIVE

· An association (either incorporated or not), organized to provide an economic service for its members “without profit.” Good examples include an electric Co-op, certain student owned bookstores, certain buying entities, and the like.

FRANCHISE RELATIONSHIPS

· Franchise: A relationship where the owner of a trademark, trade name, or copyright (the franchisor) allows another person or entity (the franchisee) to use that trademark, trade name, or copyright, under specified conditions or subject to particular limitations, in selling goods and/or services.

· Distributorship: A relationship where a manufacturer (the franchisor) licenses one or more dealers (the franchisees) to sell the manufacturer's product. Often a distributorship will cover an exclusive territory

· Chain Store: A relationship where the franchisee operates under the franchisor's trade name and is identified as a member of a select group of dealers that engages in the franchisor's business. For example, McDonalds.

· Manufacturing or Processing Plant: A relationship where the franchisor transmits to the franchisee essential ingredients and/or the specifications to make a particular product, which the franchisee will then market at the wholesale or retail level in accordance with the franchisor's standards. For example, Coca Cola bottling plants.

LAWS GOVERNING FRANCHISING

· Federal Protection: Auto dealerships are protecting by the Auto Dealers franchise Act. Another example is the Petroleum Marketing protection act, where dealers are not thrown to the wolves.

· State Protection: Similar to federal protection.

ISSUES IN FRANCHISE CONTRACTS

· Payment for the Franchise: The franchisee typically pays an initial fee or a lump-sum price for the franchise license, separate and apart from the cost of any equipment and products purchased by the franchisee from the franchisor. In most cases, the franchisee will also pay the franchisor a percentage of annual sales and, quite often, will contribute to advertising and administrative costs of the franchisor.

· Location: Typically, the franchisor determines the territory to be served by the franchisee and whether the franchisee has an "exclusive" territory.

· Business Premises: The Agreement may specify whether the premises can be leased or purchased outright.

· Business Organization: The Franchisor demands clear accounting, keeping of quotas, and the like. Also, control over training of employees may be retained by the Franchisor.

· Quality control: day to day is left to the franchisee, but the overall QC is determined by the Franchisor.

· Price Controls: A franchisor may suggest the price at which its franchisees will sell its product; however, the franchisor may not mandate the price, because to do so would violate antitrust laws.

· Termination: Most franchise agreements provide that termination must be "for cause" -- e.g., death or disability of franchisee, bankruptcy or insolvency of the franchisee, breach of the franchise agreement -- and must be preceded by reasonable notice to the franchisee.