Converting Your License Into a Franchise in Georgia

Converting your license into a franchise in Georgia could be your next step beyond licensing your company’s intellectual property assets. Franchising involves substantially more resources, attention, and involvement than licensing, but the financial returns and growth prospects for your business could be significantly greater.

At Franchise.Law, our attorneys offer various franchising legal services and could advise you through the entire license-to-franchise conversion process. The Federal Trade Commission (FTC) and state regulatory agencies enforce franchise laws and regulations. Although based in Charlotte, NC, and not licensed to practice Georgia law, our lawyers are able to advise franchisors throughout the United States in compliance with federal and multi-jurisdictional state laws.

What Steps Are Necessary To Convert a Business Into a Franchisor?

Multiple franchisees may not be able to replicate the business model you developed when you first licensed your business’s intellectual property to licensees. If you have not already done so, your first step toward converting from a licensor to a franchisor in Georgia should be to develop and document an objective business model that your franchisees can use to operate their individual franchises.

When the business model is ready, one of our lawyers at Franchise.Law could help you with the next several conversion steps, including:

• Confirming your registrations or applying to register your patents, trademarks, and copyrights in appropriate federal and state jurisdictions.
• Drafting a Franchise Disclosure Document (FDD) that meets all FTC requirements under the federal Franchise Rule, including the 23 sections required to provide detailed disclosures of your company’s history, financial information, management, and ownership, as well as all fees and obligations that will be imposed upon franchisees.
• Filing your FDD with state regulatory bodies in registration states, and complying with all applicable state laws (such as Georgia’s Business Opportunity Law) in the states where you plan to offer and sell franchises.
• Preparing all necessary contracts and agreements that your company and its franchisees will execute for the purchase and operation of franchised locations.

We could partner with you and help you meet all legal requirements.

What Should You Consider When Making a License-To-Franchise Conversion Decision?

Under the Federal Trade Commission’s Franchise Rule, a relationship is legally defined as a franchise if three elements are met: (1) the grant of the right to use the franchisor’s trademark, (2) the franchisor exercises or has the right to exercise a significant degree of control over the franchisee’s method of operation, and (3) the franchisee is required to make a payment of at least $615 in the first six months of operation. Many state laws also apply the first and third elements, substituting ‘control’ with a ‘marketing plan’ or ‘community of interest’ element.

Licensing and franchising are different mechanisms to monetize the value of a business and its intangible assets, with licensing considered a simpler and more straightforward means of deriving revenue from those assets. Nonetheless, licensing and franchising have similar qualities. If a business is not careful, a regulatory body may view a licensing arrangement as closer to a franchise that is subject to significant regulations and disclosure obligations.

If a regulator concludes that your license is really a franchise, they may deem the license unenforceable, and you and your business may be subject to substantial fines and penalties. Furthermore, officers and directors can face personal liability, and an aggrieved franchisee may have a private right of action for rescission and restitution, which are remedies that could jeopardize the entire business system. You could avoid these and other regulatory problems by retaining our attorneys to periodically audit your licensing program.

Accidental franchises commonly arise from agreements that were intended as simple:

• IP licensing agreements
• Trademark license agreements
• Training agreements
• Product distribution agreements

We could help you determine if you should consider changing from licensing to franchising in Georgia.

How Do Regulators Become Aware of License and Franchise Issues?

If a dispute arises between your company and a licensee, failure to resolve the problem may cause your licensee to file a complaint with the FTC or a state regulator. FTC and state regulators are most likely to investigate whether your licensing operations are really a franchise after receiving such a complaint.

If one or more of your licensees has expressed dissatisfaction with any aspect of a Georgia licensing arrangement, you should evaluate the need to convert to a franchisor. In addition, if you decide to sell your business, a prospective purchaser may uncover license and franchise issues during due diligence that could impede the sale.

Call Franchise.Law To Change Your Georgia License Into a Franchise

If you are considering converting your license into a franchise in Georgia, or if you have questions about your regulatory obligations, our attorneys at Franchise.Law could provide you with knowledgeable representation and legal counsel. Call us today to discuss your options.