San Diego Franchise Law: Types of Franchises
Everyone is familiar with franchises. Many of the businesses that we buy from are franchises, including fast food and other restaurants, stores, gas stations, etc. A franchise is a type of business where you, the local “franchisee,” pay an annual franchising fee and the “franchisors” allow you to use their business brand, name, and business method/system. If you are considering buying a franchise, contact us at San Diego Corporate Law. We have extensive experience helping San Diego residents buy or sell a franchise. Here is some general information on the franchise industry and the types of franchises.
San Diego Franchise Attorneys: Franchises in San Diego, California, and the US
Franchising is big business. Across the country, there are nearly 780,000 franchise businesses open, operating in 75 sectors of the economy and generating nearly $900 billion in sales annually. Franchises directly employ nearly 9 million workers. See here.
All franchises have these key characteristics:
- Franchise agreement — usually written but can be implied or oral or written
- Significant franchisor control or requirements with respect to franchisee use of marking plan or business system/model
- Requiring/allowing use of franchisor’s trademark, logos, etc., by the franchisee in running the business
- Payment by franchisee of a franchise fee — usually direct payment, but can also be indirect payment through mandated product purchases at premium prices
To see how California law defines a “franchise,” see Cal. Bus. & Prof. Code, § 20000 et seq.
San Diego Franchise Lawyers: Types of Franchises
There are many ways to categorize and compartmentalize franchises, but the easiest method is to distinguish franchises as two broad common-sense types: product distribution franchises and service related franchises. As the names suggest, the first relates to providing goods and products and the second involves providing services.
From there, we can offer another set of categories based on how the franchising unit is described. Thus, in general, we can speak of these three categories:
- Single-unit franchising — one store, one mobile foodtruck, one pretzel cart, etc.; example: restaurant
- Territory franchising — grant of franchising rights based on a geographic territory with expectation of opening/operating multiple franchising units in territory; example: ice cream trucks
- Product franchising — grant of franchising rights to certain categories of product; expectation is franchisee will locate retail outlets; might be multiple product franchisees covering a given geographic territory; often end-chain retail outlet must be approved; example: hair care products
Finally, we can speak in terms of who is targeted with respect to the franchise sales:
- Direct customer sales franchising — this is the standard model that most of us are familiar with; this most visible type of franchising
- Supply-chain franchising — a variation on product franchising; franchisee provides sales and support services to single-unit retail franchise outlets
- Business-to-business franchising
All of these types of franchises have advantages and disadvantages for the unique desires and needs of those considering buying and operating a franchise. If you have a desire to help people, service sector franchises are growing very rapidly, particularly in the healthcare field. If you have a particular product that you like, then obviously a product distribution franchise better suits your desires.
Contact San Diego Corporate Law
For more information, contact franchise law attorney Michael Leonard, Esq. of San Diego Corporate Law by email or by calling (858) 483-9200. Mr. Leonard has the experience to help with the purchase (or sale) of a San Diego franchise.