Franchising/Would like to know am I illegally franchising
I own a speciality hair salon where we offer very specific services. My concept and business operation is systematic and can be easily duplicated. Business is great and I would like to open more locations. I would like to open multiple locations but I do not have the money. I have a lot of people that would love to come in business with me. I was thinking of opening these satellite locations with at least 1 -2 partners per location. I would provide the business, clients, system and train the staff and the investors would put up the money. I would like to do a 50/50 partnership with each location. The business would be set up as a separate company but trading with the same name as all of the other salons... Example.. Stars weaving salon would be the name of all of the locations but the company is different per partner salon. Is this illegal franchising or can I do this?
You have asked a very interesting question. Generally, when the owner of trademark and an operating system licenses others to use the intellectual property and receives payment in exchange, a franchise is created. Your proposal to partner with the builders of new salons using your brand name and system is a possible way to avoid being subject to franchise regulation. Others have tried this in the past—some successfully and some not. If done with care it can work.
There is a considerable amount of legal authority that your counsel would have to study so that your partnerships were structured properly. Issues such as who bears the risk of loss could upset your plan. I also think it would be very risk to adopt the scheme if it were not the parties’ intention to remain the partnership long term.
The risk of making a mistake is very substantial. If you were to open a number of salons and were later accused of violating franchise laws the consequences would likely be disastrous. Therefore, this question absolutely has to be dealt with carefully before you expand using this approach.
The research itself would be pretty expensive. If counsel were to determine that the partnerships could be structured in a way that would both avoid franchise regulation and achieve your business needs, that custom documentation would be fairly expensive as well.
I say this because it might be less expensive to pursue a traditional franchise model. Although complying with franchise laws has its costs, they may not be higher than your more exotic partnership proposal.
I am sorry that I could not give you a concise answer that would make it easy for you to execute your expansion plans. It seems that government regulation of business rarely allows for simple answers.
Our firm, Kern & Hillman, LLC, is dedicated to the needs of franchise industry clients. My partner and I work exclusively in the franchise industry. Allan Hillman is the founder of the Maryland Bar Association Franchise Section. He practiced in Baltimore for many years before moving to Connecticut. I am the past chairman of the Connecticut Bar Association Franchise Section and Allan is my successor as the current chairman of the section.
We would be very pleased to work with you on your project whether it involves a traditional franchise structure or a partnership arrangement or some other expansion model. You can contact us at
Scott C. Kern
Kern & Hillman, LLC
2911 Dixwell Avenue, Suite 203
Hamden, Connecticut 06518