A small business is a business that is privately owned and operated. Small businesses maintain a relatively low volume of sales in addition to a small number of employees.
The standards for small businesses in the United States vary by state as well as by industry. Because of their ease of operation, small businesses are becoming more popular.
Small businesses are also becoming more popular due to the tax deductions for small businesses which are commonly available. In general, a small business is defined as a business with less than 500 employees for manufacturing industries and less than 7 million dollars in annual income for non-manufacturing industries.
A small business will often take the following forms:
- Corporations;
- Partnerships; or
- Sole proprietorships.
What Are Some Common Small Business Conflicts?
Similar to other business organizations, small businesses may be exposed to conflicts and disputes over legal issues. Just because a business is smaller in size does not mean that it will be free from conflict.
A small business may be involved in specific legal conflicts due to the size and the specificity of operations. Specific examples of common small business conflicts may include:
- Hiring and termination disputes;
- Disputes over business property and assets;
- Zoning, land use, and property use conflicts;
- Disputes over loans and financing; and
- Conflicts regarding the structure or formation of the company.
In addition, a small business may experience internal disputes between employees, owners, and others who are involved in the business. A small business management dispute may create challenges for a business while causing setbacks in terms of production and profitability.
In many cases, small business conflicts may involve personal disputes, especially when considering smaller family-run businesses. Common examples management conflicts in small businesses may include:
- Conflicts with employees;
- Labor union conflicts;
- Issues with white collar crime, which may include fraud or tax evasion;
- A dispute with another business, for example, a dispute involving trade secrets, unfair competition, etc;
- Handling employee benefits and wages; and
- Compliance with federal and state laws, such as the Americans with Disabilities Act (ADA) and handicap accessibility laws.
What is a Small Business Franchise?
Small business franchises are when small business owners open up a branch or another department of an existing business. With a franchise, the business owner is permitted to use the existing company’s:
- Logos and trademarks;
- Marketing techniques and strategies;
- Properties; and
- Production methods.
Franchises may be beneficial for individuals who would like to operate their own business but they do not want to do so from scratch. A franchise operates in a similar manner to a small business partnership.
What are the Types of Franchises?
In general, there are two main categories of franchises, entire business format franchise and product distribution franchise. An entire business formal franchise receives the use of the following of the franchisor:
- Trademarks;
- Reputation, or good will;
- Trade secrets;
- Copyrights; and
- Marketing and service information.
Examples of this type of franchise include McDonalds and 7-Eleven. With a product distribution franchise, the franchisor distributes a particular product to franchisees, for example, vending machines.
What Are Some Advantages of Small Business Franchises?
Advantages of a small business franchise may include:
- Less overhead expenses;
- Brand recognition because most franchises involve well-established product names;
- Ease of starting compared to starting a business completely from the ground up;
- May involve more favorable property locations;
- Customer and client bases may be in existence already; and
- An easier learning curve because the owner typically follows set programs and guidelines.
What are Some Drawbacks of Franchising?
Drawbacks of franchising may include:
- Less room for creativity and implementing personal plans and strategies;
- The inability to share company ideas and trade secrets;
- Possible limited room for upward growth and mobility; and
- Being limited to that particular brand or company.
Additionally, franchise liability laws may be tricky. Depending upon the legal issue or violation involved, a franchise owner may still be held liable for certain claims. In other situations, the overall, or national, management may be held liable, depending on the facts involved in the legal dispute.
Should You Purchase a Franchise?
Prior to deciding on what franchise to purchase, an individual should investigate the background and nature of the franchise company. Questions an individual should consider include:
- What do other franchise owners have to say regarding the franchise?;
- Does the franchise have name recognition or a good reputation?;
- What does the franchise offer its franchisees as far as service for problems and questions?;
- Have any lawsuits been filed against the franchiser by a franchisee?;
- What was the outcome of any lawsuit filed?;
- What is the required training?; and
- What are the prospective returns on having that franchise in the individual’s location?.
What is a Franchise Agreement?
A franchise agreement is a contract which establishes the relationship, including the rights and obligations, of the franchisor and franchisee. In general, the franchise agreement provides the following:
- The franchise fee;
- The restrictions that are placed on the business management structure of the franchisee;
- The cost of inventory;
- The income required by the franchiser as well as when it will be calculated;
- Length of the agreement; and
- A termination clause which outlines upon what events the franchisor terminates the franchise agreement. For example, some franchisors require that if a franchise does not make a specified income, the franchise will be terminated.
It is important for an individual to have an attorney review a franchise agreement prior to signing it.
When Can a Franchisor Terminate a Franchise Contract?
The laws of the state which govern franchises generally provide that a franchisor can not terminate a franchise contract with one of its branches unless it has good cause to do so. What is considered to be good cause may vary by state.
There are several basic circumstances in many states where a franchisor may have good cause to terminate a contract include:
- If the branch has done anything to materially breach the contract, such as not paying the required fees;
- If the branch commits any type of fraud on record;
- If the branch does anything to the detriment of its customers; and
- If the branch files for bankruptcy.
If an individual is an owner of a franchise branch, it is important for them to check the laws in their state to determine what situations qualify as good cause for terminating a franchise contract. Additionally, many states require that there be a qualifying circumstance and that canceling the franchise contract must be a reasonable remedy for dealing with the circumstance.
For example, it would be reasonable for Burger King to terminate a contract with one of its branches filing for bankruptcy if the purpose of termination is for the company to avoid further financial losses. As previously noted, justifiable reasons for terminating a franchise contract may vary, so it is important to check the laws of the state.
Do I Need a Lawyer for Help With Small Business Franchise Issues?
A small business franchise may offer numerous advantages to a future small business owner.
Small business franchises can offer various advantages to future small business owners. You may wish to consult with a small business lawyer if you need assistance starting a business or if you need assistance with franchise-related documents.
Your attorney can assist you during the filing process. In addition, if you are required to file a legal claim regarding your dispute, your attorney can represent you in court.
