In these troubled economic times, an increasing number of companies are attempting to expand using what is essentially a franchise metric business model, but is called a "license." The reasoning goes something like this. "If we call it a 'license,' we won't have to prepare a FDD Franchise Disclosure Document with audited financial statements and register with various regulatory agencies." It sounds good - almost too good to be true. And it is too good to be true. The list of elements required to fall into the franchise box is very short and the overwhelming majority of license agreements that allow someone to operate a business turn out to be disguised illegal franchises.
What To Do If You Bought A License That May Be An Illegal Franchise - First Step
The first thing to do is have a competent expert review the document you signed and the surrounding circumstances to see where you stand. Typically the analysis is under both the FTC Franchise Rule, which applies in all states, as well as under applicable state law.
Step Two - Decide On A Strategy
Assuming the results in Step 1 are positive, it's important to consider the appropriate strategy. The last thing any company that's sold a license wants is to be involved in a lawsuit involving fraud, misrepresentation, failing to follow franchise disclosure and registration laws, etc. A well-written demand letter, backed up by an expert's report, may be all it takes to get all of your money back and release you from any further obligations under the "license." If there are other persons who also bought a "license" and they join in, this increases your leverage.
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