Sole Proprietorships and Franchises

Primarily governed by contract law ucc article 2

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Primarily governed by contract law UCC Article 2 governs franchises for sales of goods Federal Regulation of Franchises Industry-Specific Standards:  protect franchisee from unreasonable demands  and bad faith termination The FTC Franchise Rule:  disclosures State Protection for Franchisees. Protection from unfair trade practices and bad faith terminations. Disclosure documentation (Franchise Disclosure Document), including costs of  operation, recurring expenses, profits earned, and substantiating of these figures. State law may prohibit termination without “good cause.”
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What are the various issues that are covered in a franchise contract? The Franchise Contract includes: Payment for the Franchise:  lump sum, initial fee Business Premises:  leased of purchased Location of the Franchise Quality Control by Franchisor good will, reputation and trademark value.  Courts will not question Franchisor’s  strict supervision but Franchisor may be liable for torts of agents. Pricing Arrangements:   franchisor cannot set prices of goods sold How is a franchise terminated? - Generally franchise agreements are more favorable towards the franchisor.  - In the event of breach, franchisee may have the opportunity to “cure” an  ordinary breach within a period of time to prevent termination Wrongful Termination. Importance of Good Faith  and Fair Dealing. Courts usually try to balance the rights of both parties. If franchisor arbitrarily or  unfairly terminates a franchise, the franchisee will be provided with a remedy for  wrongful termination. If franchisor’s decision to terminate was made in the normal course of the  franchisor’s business operations, and reasonable notice of termination was given  to the franchisee, most  courts will not consider the termination wrongful.
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