The Small Business Franchise Act


Originally introduced in 1998 and approved in 1999, the Small Business Franchise Act (SBFA) is has put in place certain security measures designed to prevent fraud and other activities that could exploit franchisee investors. The consensus holds that SBFA was introduced in order to give the franchise more bargaining power against franchisors.

Michigan Congressman John Conyers, Jr. that “Protecting the rights of the franchise is ultimately to protect the rights of small businesses.”

The proof is in the details:

1) The bill strengthens existing prohibitions. The SBFA is a reminder to maintain fraud within the franchisor-franchisee relationship is prohibited.

2) The bill mandates good behavior and religion. Unsurprisingly, not all of the same rules in the world of franchising. The SBFA looks small franchise by requiring all parties to act honestly with each other and respect the reasonable demands of the fair in the industry.

3) The bill encourages franchisees to form a trade association. The SBFA clear that companies can not prevent a franchise from the organization or joining trade association. (As a matter of fact, membership in professional associations is useful, and can increase their knowledge of the franchising world).

4) The bill protects the franchise from unjust dismissal. Will be given a mandatory 30-day period to franchisee to cure all defaults, among other benefits.

5) The bill promotes free trade Post franchise agreement expired. We franchise agreement expires, the former franchisee may engage in business anywhere but is not authorized to use the brand franchisor is, intellectual property or trade.

6) The bill protects the franchise against illegal carrier. Franchise are particularly vulnerable to illegal transfers of prevalence merger leveraged buyouts and acquisitions. According SBFA, the franchise will be informed of the transfer of ownership of the franchisor to another party 30 day.

7) The bill gives the state attorney general permission to step in if needed. Should the state attorney general that the interests of the state have been or will be adversely affected or threatened by the franchisor activities that violate SBFA, the Attorney General is authorized to bring a civil action on behalf of residents in US District Court. In other words, the highest prosecutorial officer of the state can ensure that SBFA is not violated.

8) The bill allows franchisees the freedom to self-source products and services. Rather than forcing franchisees to purchase content from the corporate headquarters of what can be exorbitant price, SBFA allows franchisees to purchase goods and services from sources of your choice (given that the materials meet the fair, founded and coordinated system-wide quality standards attacked the franchisor).

9) The bill proposes a limited fiduciary duty on the franchisor. When handling money a small business person, the franchisor must provide their franchisees with the highest standard of care. Franchisors are obligated by SBFA give franchise full disclosure of payments and a full accounting of how the money is used.

10) The bill enforces procedural fairness. It is illegal for a franchisor to require all time / state of the franchise agreement that breaks SBFA. This is very important, as it blocks the franchisor from limiting benefits inherent in SBFA.


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