Accidental Franchises-What You Don’t Know Can Hurt Your Client¹

Barry Kurtz and Katherine L. Wallman

Barry Kurtz, a Certified Specialist in Franchise and Distribution Law by the California State Bar Board of Specialization, is the Chair of the Franchise & Distribution Law Practice Group at Lewitt Hackman in Encino, California. Barry may be reached at bkurtz@lewitthackman.com.

Katherine L. Wallman is an Associate in Lewitt Hackman’s Franchise & Distribution. She prepares and reviews domestic and international franchise registration and disclosure documents; provides counsel regarding regulatory compliance, acquisitions, and dispositions of franchised and independent units and businesses; and handles commercial transactions involving franchisors and franchisees – domestically and globally. Kate may be reached at kwallman@lewitthackman.com.

Why should all business attorneys be concerned about franchise laws? Businesspeople and attorneys often are unaware that franchise laws impact a variety of business relationships. Under federal law, as well as in California, it does not matter whether you call a business arrangement a "partnership," a "license," a "dealership," a "joint venture" or something else when you draft the agreement, or whether the agreement disclaims the existence of a franchise; if the elements of a franchise are present, it is a franchise. Franchising is a highly complex area of the law that lends itself to specialization. Knowing the following basics can help you identify franchise arrangements and prevent your business clients from becoming accidental franchisors, or from inadvertently contracting with an accidental franchisor.