Franchising vs Business Opportunity
Franchises and business opportunities are a part of the same family, both are regulated by the Federal Trade Commission, both are regulated by state specific laws, and both require a pre-sales disclosure process. The difference between a franchise and a business opportunity is that in a franchise transaction the franchisor possesses the legal right to exert on-going and long-term control over the operations of the franchisee whereas in the sale of a business opportunity degree of control is limited to the initial establishment of the business.
Both business models relate to the establishment of a new business. When the new business is established under a franchise model, the agreement between the parties is called the franchise agreement and within the franchise agreement the franchisor (the party selling the franchise) possesses the legal right to exert control over the initial and long-term operations of the franchised business. When the new business is established under a business opportunity model, the activity and control of the seller of the business opportunity is limited to the initial start-up of the business, e.g., such as selling initial equipment, vending machines, customer lists, etc…
Below is a summary of some franchise vs. business opportunity distinctions:
- Agreement Name – Franchise Agreement vs. Purchase Agreement / Supply Agreement.
- Parties – In a franchise agreement the parties are the franchisor and the franchisee. In a business opportunity transaction the legal terms or names for the parties vary and follow more generic names like buyer and seller.
- Control – Under a franchise agreement the franchisor will possess legal control over the initial development of the business and its long term operations involving things like using the franchisors trademarks, approved products and services, hours of operation, marketing and advertising, customer service, and all other aspects of the business. In a business opportunity there is no long-term control and if there is any element of control its typically limited to selling the assets, accounts, and start-up assets used by the buyer to start his or her new business.
Are Business Opportunities an Alternative to Franchising?
No they are not alternatives and, in fact, the line between what constitutes a business opportunity and what constitutes a franchise is extremely close. For this reason both are regulated by the Federal Trade Commission and at the state specific level and both require a disclosure document. Franchisor’s who comply with the franchise laws are typically exempt from business opportunity laws and regulations.
If you have a question about business opportunities or franchises, call our team at (800) 976-4904 or by email.
By Charles Internicola November 17, 2020
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