Chapter 39
Special Business Forms And Private Franchises

WHAT THIS CHAPTER IS ABOUT
This chapter sets out features of other forms for doing business-joint ventures, business trusts, cooperatives, and so on.The chapter also discusses private franchises.
CHAPTER OUTLINE7

I SPECIAL BUSINESS FORMS

A. JOINT VENTURE

An enterprise in which two or more persons combine their efforts or property for a single transaction or project, or a related series of transactions or projects. Unless otherwise agreed, joint venturers share profits and losses equally.

1. Characteristics
Same as a partnership except members have less implied and apparent authority than partners, and death of a member does not terminate a joint venture.
2. Duration
Depending m the circumstances: members specify a duration, venture terminates when project for which it is formed is completed, or venture is terminable at the will of any of its members.
3. Duties, Rights, and Liabilities among Joint Venturers
a. Duties
Same as partners (see Chapter 33).
b. Conflicts When Members Are Competitors
(1) Each may face a choice between disclosing trade secrets to a competitor and breaching the duty to disclose, and (2) there is potential for violation of antitrust laws (see Chapter 47).
c. Rights
Each joint venturer has an equal right to manage the activities of the enterprise (though control may be given to one member).
d. Liability
Each joint venturer is liable to third parties for the actions of the other members in pursuit of the goal of the venture.
B. SYNDICATE
A gap of individuals financing a project; may exist as a corporation, a partnership,or no legally recognized form.
C. JOINT STOCK COMPANY
Usually treated like a partnership (formed by agreement, members have personal liability, etc.),
but members are not agents of one another and has many characteristics of a corporation:
(1) ownership by shares of stock, (2) managed by directors and officers, and (3) perpetual existence.
D. BUSINESS TRUST
Legal ownership and management of the property of the business is one or more trustees;
profits are distributed to beneficiaries, who are not person­ally responsible for the debts of the trust.Resembles a corporation.
E. COOPERATIVE
An association that is organized to provide an economic service without profit to its members
(or shareholders).
1. Incorporated Cooperative
Subject to state laws governing nonprofit corporations. Distributes prof­its to owners on the basis of their transactions with the cooperative rather than on the basis of the amount of capital they contributed.
2. Unincorporated Cooperatives Often treated like partnerships. The members have joint liability for the cooperative's acts.

II PRIVATE FRANCHISES
A franchise is any arrangement in which the owner of a trademark, a trade name,
or a copyright has licensed others to use it in selling goods or services.
A. TYPES OF FRANCHISES
1. Distributorship
When a manufacturer licenses a dealer to sell its product (such as an au­tomobile dealer).
Often covers an exclusive territory.
2. Chain-Style Business Operation When a franchise operates under a franchisor's trade name and is iden­tified as a member of a group of dealers engaged in the ftanchisor's business
(such as most fast-food chains).The franchisee must follows standardized or prescribed methods of operations, and may be obligated to obtain supplies exclusively from the franchisor.
3. Manufacturing or Processing-Plant Arrangement When a franchisor transmits to the franchisee the essential ingredients or formula to make a product (such as Coca-Cola), which the franchisee makes and markets according to the franchisor's standards.

B. LAWS GOVERNING FRANCHISING

1. Federal Protection for Franchisees

a . Automobile Dealers' Franchise Act of 1965
Dealership franchisees are protected from manufacturers' bad faith termination
of their franchises.
b. Petroleum Marketing Practices Act (PMPA) of 1979
Prescribes the grounds and conditions under which a gasoline station franchisor may terminate or decline to renew a franchise.
c. Antitrust Laws
May apply if there is an anticompetitive agreement (see Chapter 45)

d. Federal Trade Commission (FTC) Regulations Franchisors must disclose material facts necessary to a prospective franchisee's making an informed decision concerning a franchise.

2. State Protection for Franchisees
Similar to federal law. State deceptive practices acts may apply, as may Article 2 of the Uniform Commercial Code.
C. THE FRANCHISE CONTRACT
A franchise relationship is created by a contract between the franchisor and the franchisee.
1 . Payment for the Franchise
A franchisee pays (1) a fee for the franchise license, (2) fees for products
bought-from or through the franchisor, (3) a percentage of sales, and (4) a percentage of advertising and administrative costs.
2. Business
The agreement may specify whether the premises for the are leased or purchased and who is to supply equipment and furnishings.
3. Location of the Franchise
The franchisor determines the territory to be served and its exclusivity.
4. Business Organization of the Franchisee A franchisor may specify requirements for the form and capital structure of the business.
5. Quality Control
A franchisor may specify standards of operation (such as quality standards) and personnel training methods.
Too much control may result in a franchisor's liability for torts of a franchisee's employees.
6. Pricing Arrangements
A franchisor may require a franchisee to buy certain supplies from the franchisor
at an established price. A franchisor may also set retail prices for the goods that
the franchisee sells.
7. Termination of the Franchise
Determined by the parties. Usually, termination must be "for cause" (such as breach of the agreement, etc.) and notice must be given. A franchisee must be given reasonable time to wind up the business.