Full Answer
Why do franchisors use joint ventures?
What is joint venture franchising?
What is the difference between a strategic joint venture and a franchise?
What is strategic joint venture?
What is the role of franchisor in a franchise?
What happens if a franchise agreement is terminated?
Why is franchising important?
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Is a franchise considered a joint venture?
These are two popular business models that people often get confused about. Both franchise and joint venture involve working together. While in franchising, a franchisee can use the logo, label, brand name, trademark of the company, in a joint venture the partners share the expenses and profits of the business.
Who is exempt from the FTC Rule?
Franchisees who commonly qualify for this exemption are hospitals, universities, or airports. To qualify for the exemption, the prospective franchisee must (1) have been in business for at least five years and (2) have a net worth of at least $6,165,500.
What is a franchise exemption?
The sophisticated franchisee exemption is available to franchisors if their potential franchisees are sophisticated enough to protect their own interests. Potential franchisees having at least 50% ownership must have 24 months of experience in the business within the last 7 years. Cal. Corp. Code § 31106(a).
Is a joint venture between a franchisor and a franchisee?
In joint venture franchising, the franchisor, in addition to its traditional franchises, takes an equity interest in the franchisee, hence the term “joint venture franchising”. The franchisee will be a corporation, limited partnership, or some other suitable investment vehicle.
What is the minimum investment exemption to the FTC rule?
The franchise sale is for more than $1 million – excluding the cost of unimproved land and any financing received from the franchisor or an affiliate – and thus is exempt from the Federal Trade Commission's Franchise Rule Disclosure requirements, pursuant to 16 C.F.R.
What are the basic requirements of the Franchise Rule?
The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.
What is the difference between a franchise and a joint venture agreement?
The support provided in the franchise model enables entrepreneurs to get a business up and running within a short timeframe, while a joint venture can be ideal for businesses that can benefit from the expertise of another organisation.
What is the differences between franchising joint ventures and licensing?
In a franchise partnership, the business belongs to the franchisee. The franchisee essentially runs the business for the franchisor, but at a fee. In a licensing partnership, the licensee only pays the licensor for a specific product, for which the licensor may have taken out patent rights.
What is a joint venture franchise model?
Joint Venture A franchisor may enter into joint venture agreements with prospective franchisees. The business is set up at arm's length, with the franchisor retaining a stake.
Who is subject to the FTC Act?
Section 5 of the Federal Trade Commission Act (FTC Act) (15 USC 45) prohibits ''unfair or deceptive acts or practices in or affecting commerce. '' The prohibition applies to all persons engaged in commerce, including banks.
Who is subject to the FTC?
The FTC's authority covers for-profit entities such as mortgage companies, mortgage brokers, creditors, and debt collectors – but not banks, savings and loan institutions, and federal credit unions.
Who does the Federal Trade Commission apply to?
The Federal Trade Commission enforces a variety of antitrust and consumer protection laws affecting virtually every area of commerce, with some exceptions concerning banks, insurance companies, non-profits, transportation and communications common carriers, air carriers, and some other entities.
What are the rules of the FTC?
The FTC enforces federal consumer protection laws that prevent fraud, deception and unfair business practices. The Commission also enforces federal antitrust laws that prohibit anticompetitive mergers and other business practices that could lead to higher prices, fewer choices, or less innovation.
10 Brilliant Franchise Examples to Learn From (in 2022)
Today, the franchising system is a business model that constitutes an agreement between a business owner (the franchisor) and a third-party (the franchisee).. This agreement allows the franchisee to manage and operate the owner’s products and services using their trademark, branding, and business model – in return for a fee and ongoing royalty payments.
What are the 4 Types of Franchising? - Franchise.com Blog
Often, larger franchises have multiple franchise models you can choose from when joining its system. When you choose one of the 4 types of franchising agreements, you can benefit from an established brand, a proven concept, a network of fellow franchise owners, a franchise team to train and support you, and much more.
Is a royalty interest in an oil well in Texas subject to franchise tax?
12. Is a non-Texas entity that owns a royalty interest in an oil or gas well in Texas subject to the franchise tax? Yes. A royalty interest in an oil or gas well is considered an interest in real property . Therefore a non-Texas entity that owns a royalty interest in an oil or gas well in Texas is considered to own real property in Texas ...
Is a partnership taxable?
Yes, to qualify as a non-taxable entity, the partnership must be a general partnership. TTC 171.0002 (b).
Is a passive entity taxable?
A passive entity as defined by TTC 171.0003 is not a taxable entity. TTC 171.0002 (b) (3). (See FAQ#8 under Passive Entities Rule 3.582 for possible reporting requirements.)
Do you have to file a separate franchise tax report in Texas?
Yes. The determination of responsibility for Texas franchise tax is based on the legal formation of an entity. An entity’s treatment for federal income tax purposes does not determine its responsibility for Texas franchise tax. Therefore, each taxable entity that is organized in Texas or doing business in Texas is subject to franchise tax, even if it is treated as a disregarded entity for federal income tax purposes. The entity is required to file a separate franchise tax report unless it is a member of a combined group. If the entity is a member of a combined group, the reporting entity may include the disregarded entity with the parent’s information; in that event, both entities are presumed to have nexus. (Updated 04/10/08)
Is a joint venture taxable?
No; a joint venture that is wholly and directly owned by natural persons is not a taxable entity. (Updated 06/19/08)
Is a limited liability company subject to franchise tax?
Yes; a limited liability company that is organized in Texas or is doing business in Texas is subject to the franchise tax. (Updated 06/19/08)
Is a sole proprietorship taxable?
A sole proprietorship that is not legally organized in a manner that limits its liability is not a taxable entity. A single member limited liability company filing as a sole proprietor for federal income tax purposes is a taxable entity. TTC 171.0002 (d).
Is a royalty interest in an oil well considered real property?
Yes. A royalty interest in an oil or gas well is considered an interest in real property. Therefore, a non-Texas entity that owns a royalty interest in an oil or gas well in Texas is considered to own real property in Texas and is subject to the franchise tax unless it is a nontaxable entity.
Is a family limited partnership taxable?
A family limited partnership is a taxable entity unless it meets the criteria of a passive entity under TTC 171.0003. Are sole proprietorships subject to the franchise tax? A sole proprietorship that is not legally organized in a manner that limits its liability is not a taxable entity. A single-member limited liability company filing as ...
Is a grantor trust taxable?
This subsection states that a grantor trust qualifies as a nontaxable entity if: all of the grantors and beneficiaries are natural persons or charitable entities and. it is not a trust taxable as a business entity pursuant to IRS Treasury Regulation Section 301.7701-4 (b).
Is a single member limited liability company a sole proprietor?
A single-member limited liability company filing as a sole proprietor for federal income tax purposes is a taxable entity. TTC 171.0002 (d). Is a non-Texas entity that owns a royalty interest in an oil or gas well in Texas subject to the franchise tax? Yes. A royalty interest in an oil or gas well is considered an interest in real property.
Is a taxpayer a disregarded entity?
The taxpayer is a disregarded entity for federal purposes. If such a taxpayer has nexus in Texas, does the taxpayer have a Texas franchise tax filing responsibility? Yes. The legal formation of an entity – not an entity's treatment for federal income tax purposes – determines filing responsibility for Texas franchise tax.
Seasoned or Large Franchisor Exemption
The seasoned or large franchisor exemption is available to franchisors if they meet certain net worth and experience standards. For example, McDonald’s does not have to register in most states because it meets the net worth and experience standards.
Large Franchisee Exemption
The large franchisee exemption is like the large investment exemption in that the exemption is available to franchisors when potential franchisees have strong bargaining positions. The net worth standard is $5 million, and the potential franchisee must have at least 5 years of experience. 815 Ill. Comp. Stat. Ann. 705/8 (a).
Large Investment Exemption
The large investment exemption is available to franchisors when the franchisor and potential franchisee have relatively equal bargaining power and business expertise. If the potential franchisee can afford a large investment, then it is more likely that the potential franchisee is experienced in business and has the resources to protect itself.
Insider Exemption
The insider exemption is available to franchisors if potential franchisees are already associated with franchisors. The idea is that “insiders” are knowledgeable about the franchise business, so Illinois is less concerned about sophistication or experience issues.
Institutional Franchisee Exemption
The institutional franchisee exemption is available to franchisors when a sale or offer is made to an institution. For example, an offer or sale of a franchise to a bank is exempt. Ill. Admin. Code tit. 14, § 200.202 (a). Other institutions include trust and insurance companies. 815 Ill. Comp. Stat. Ann. 705/8 (b).
Single Sale Franchise Exemption
The single sale franchise exemption is available to franchisors who wish to avoid registration requirements by limiting the number of franchises offered for sale. In Illinois, the number of franchise sales is limited to 2 sales in any 12-month period. Ill. Admin. Code tit. 14, § 200.202 (b).
Out of State Franchise Exemption
The out of state franchise exemption is available to franchisors when a state allows them to sell outside the state to non-residents. First, franchisors in Illinois must ensure that potential franchisees are not domiciled in Illinois. 815 Ill. Comp. Stat. Ann. 705/10.
Why do franchisors use joint ventures?
Either the franchisor wishes to exert greater control over the franchisee or it wishes to show greater commitment to the franchisee, by committing its own resources to the franchise.
What is joint venture franchising?
Joint venture franchising is a dynamic but complex commercial model that can be used to achieve a variety of strategic purposes. It is important that both the franchisor and the franchise partner understand each other's objectives and devise a version of the model which is aligned with those objectives. The more the parties invest in the planning and structuring stage, the more likely that the joint venture will deliver long term success for both the franchisor and the franchise partner. Above all, it is crucial that the franchisor's roles are clearly delineated and that the two layers of the relationship – the franchise and the joint venture – are kept distinct.
What is the difference between a strategic joint venture and a franchise?
The key difference between a Strategic Joint Venture and the many other types of joint venture franchise is the level of control and day to day involvement of the franchisor in the management of the franchisee. Strategic Joint Ventures tend to require more involvement of the franchisor whereas other structures are designed for minimal day to day involvement from the franchisor.
What is strategic joint venture?
A Strategic Joint Venture can be used as a sequenced market entry strategy by which the franchisor agrees that it and a franchise partner will together set up a "special purpose vehicle" to act as the franchisee to establish the franchise business (under the terms of the franchise agreement granted by the franchisor) with the stated aim that the franchise partner would transfer its interest in the special purpose vehicle to the franchisor in due course at a pre-agreed formula based price.
What is the role of franchisor in a franchise?
In a traditional franchise model the franchisor relies on the contractual terms within the franchise agreement to control the franchisee. This control often extends beyond the manner in which the franchisee operates the franchise business and touches upon the franchisee’s access to working capital, the identity of directors/shareholders and their other business interests and typically creates consequences if there is an unapproved transfer of shares in the franchisee. This level of control is often sufficient for franchisors, representing the right spot on the risk/reward graph.
What happens if a franchise agreement is terminated?
Termination of the franchise agreement should automatically lead to the winding up of the special venture vehicle. The opposite is also true, if a deadlock arises within the special purpose vehicle then most likely the franchisee will be unable to operate. Certainly relations between the franchisor and franchise partner will mean that it would be preferable if the franchise partner was no involved in the franchise network.
Why is franchising important?
Franchising provides a flexible model for growth or re-engineering, with a variety of structures to meet different needs. Of all the structures the joint venture franchise is the least understood and most likely to cause difficulties, if not structured correctly. In order to understand why this is so, it is necessary to consider the rationale for using the joint venture model and the manner in which the relationship should be structured.