Ch. 1: Sole Proprietorships and Franchises – No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
Entrepreneur: Someone who initiates and assumes the
financial risk of a new enterprise.
should consider the following factors when deciding what
Ch. 1: Sole Proprietorships and Franchises – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
TRADITIONAL BUSINESS FORMS
Sole Proprietorship: A business owned by a single person or
family.
Partnership: An agreement by two or more persons to carry
on, as co-owners, a business for profit.
board of directors.
Ch. 1: Sole Proprietorships and Franchises – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
SOLE PROPRIETORSHIP: PROS AND CONS
the proprietor receives all of the profits;
the owner has the maximum degree of control over
business decisions; and
liabilities incurred by the entity;
the entity will not survive the proprietor’s death,
disability, or retirement; and
FRANCHISE RELATIONSHIPS
Franchise: A relationship where the owner of a trademark,
particular limitations, in selling goods or services.
Distributorship: A relationship where a manufacturer
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
product, which the franchisee will then market at the
wholesale or retail level in accordance with the
franchisor’s standards.
Ch. 1: Sole Proprietorships and Franchises – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
FRANCHISE LAWS
Because a franchise relationship is primarily a contractual
relationship, state contract law governs most aspects of the
franchise relationship. In addition, federal statutes govern
particular types of franchises or aspects of franchising. For
example:
The Automobile Dealers’ Franchise Act protects
terminate or decline to renew a gas station’s franchise.
More generally, the Federal Trade Commission’s
Franchise Rule requires franchisors to disclose material
facts that a prospective franchisee needs in order to make an
Ch. 1: Sole Proprietorships and Franchises – No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
FRANCHISE CONTRACT ISSUES
advertising and administrative costs of the franchisor.
Business Premises: The agreement should specify whether
the franchisee must lease or purchase its business premises.
Quality Controls: A franchisor may establish and enforce
certain quality standards in order to protect its reputation.
Price Controls: A franchisor may suggest the price at which
Ch. 1: Sole Proprietorships and Franchises – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
FRANCHISE TERMINATION
Duration: Most franchise agreements specify their duration,
although the franchisor and the franchisee may agree to
extend that duration if they can agree on the terms of renewal.
Notice: If the franchise agreement does not set a
minimum period for notice prior to termination, then the
franchisor must give the franchisee reasonable notice of
its intent to terminate the franchisee.
Wrongful Termination: Because the franchisee makes
a substantial investment to use, but not own, the
franchisor’s trademark, trade name, etc., both statutory
and case law emphasize the franchisor’s duty to act in
good faith when terminating a franchisee.
Ch. 1: Sole Proprietorships and Franchises – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
TRADITIONAL BUSINESS FORMS
Sole Proprietorship: A business owned by a single person or
family.
Partnership: An agreement by two or more persons to carry
on, as co-owners, a business for profit.
board of directors.
Ch. 1: Sole Proprietorships and Franchises – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
SOLE PROPRIETORSHIP: PROS AND CONS
the proprietor receives all of the profits;
the owner has the maximum degree of control over
business decisions; and
liabilities incurred by the entity;
the entity will not survive the proprietor’s death,
disability, or retirement; and
FRANCHISE RELATIONSHIPS
Franchise: A relationship where the owner of a trademark,
particular limitations, in selling goods or services.
Distributorship: A relationship where a manufacturer
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
product, which the franchisee will then market at the
wholesale or retail level in accordance with the
franchisor’s standards.
Ch. 1: Sole Proprietorships and Franchises – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
FRANCHISE LAWS
Because a franchise relationship is primarily a contractual
relationship, state contract law governs most aspects of the
franchise relationship. In addition, federal statutes govern
particular types of franchises or aspects of franchising. For
example:
The Automobile Dealers’ Franchise Act protects
terminate or decline to renew a gas station’s franchise.
More generally, the Federal Trade Commission’s
Franchise Rule requires franchisors to disclose material
facts that a prospective franchisee needs in order to make an
Ch. 1: Sole Proprietorships and Franchises – No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
FRANCHISE CONTRACT ISSUES
advertising and administrative costs of the franchisor.
Business Premises: The agreement should specify whether
the franchisee must lease or purchase its business premises.
Quality Controls: A franchisor may establish and enforce
certain quality standards in order to protect its reputation.
Price Controls: A franchisor may suggest the price at which
Ch. 1: Sole Proprietorships and Franchises – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
FRANCHISE TERMINATION
Duration: Most franchise agreements specify their duration,
although the franchisor and the franchisee may agree to
extend that duration if they can agree on the terms of renewal.
Notice: If the franchise agreement does not set a
minimum period for notice prior to termination, then the
franchisor must give the franchisee reasonable notice of
its intent to terminate the franchisee.
Wrongful Termination: Because the franchisee makes
a substantial investment to use, but not own, the
franchisor’s trademark, trade name, etc., both statutory
and case law emphasize the franchisor’s duty to act in
good faith when terminating a franchisee.