It is. Look, licensing is a natural progression for a business. That is you create a business, it is successful and other want to replicate your success. So, you go to a lawyer (or Legal Zoom) and someone draws up a license agreement. You sell 2, 4, 10 licensed and all is good, right?
Well no, it is not. Sure you made progress and your franchisees (ohhh… I mean licensees) are successful. But the reality is that you are exposed. You see because politicians regulate businesses and franchise regulation is no different. The reality is that licensing is not an alternative to franchising and if your business grows, you add on more licensees and you start depending on the revenue your licensees generate, your license agreement will leave you exposed. That is, by failing to comply with the franchise laws – requiring you to register and file a Franchise Disclosure Document before offering or selling a franchise – your existing agreements may become voidable. That is your licensees may cancel their agreements and continue to operate a competing business.
The good news however is that you are not alone and if you approach this problem (or ticking time bomb) proactively then you can cure this franchise violation. To do this you need to put a plan of action in place where your franchise lawyer prepared a FDD for your system and establishes a plan for converting your existing licensees to franchisees.
If you would like to learn more and get the real detail as to why your license agreements are really franchise agreements, download a copy of our guide “Franchising versus Licensing.”
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