Chapter 39: Special Business Forms and Private Franchises

§ 1: Special Business Forms Joint Venture: two or more entities combine efforts or property for a single transaction or project. Unless agreed otherwise, JV’s share profits and losses equally. Common in international transactions when U.S. companies wish to expand overseas.

JV Characteristics Resembles a partnership and is taxed like a partnership. However, a JV is limited in time and scope, whereas a partnership is an ongoing business. Other differences: JV members has less implied and apparent authority than partners. Death of JV member does not terminate JV. JV members can specify duration. If not, then JV terminates when purpose is accomplished.

JV Rights and Liabilities JV members owe a fiduciary duty to each other (loyalty, no conflicts of interest). JV members have equal right to manage the business. Case 39.1: Ultralite Container Corp. v. American President Lines (1999).

Other Entities Syndicate (Investment Group): group of individuals getting together to finance a particular project. Joint Stock Company is a hybrid of partnership and corporation: (1) ownership represented by shares of stock; (2)managed by directors and officers of the company; and (3) can have a perpetual existence.

Other Entities [2] Business Trust is created by a written agreement setting forth the interests of the beneficiaries and obligations and powers of trustees. Legal ownership and management of property remains with trustees and profits distributed to the beneficiaries. Cooperative is an association organized to provide a not-for-profit service to members.

§ 2: Private Franchises Franchisor (Owner of trademark, trade name or copyright) licenses Franchisee to use the trade mark, trade name or copyright in the sale of goods or services. Distributorship. Chain Style Business Operation. Manufacturing or Processing Arrangement.

Franchising [2] Governed by commercial sales and contract law. If franchise is primarily for the sale of goods, UCC Article 2 governs. State and federal laws regulate franchising to protect franchisee. The contract states parties’ rights and duties and can include an exclusive “territory” to market goods/services. Case 39.2: Camp Creek v. Sheraton Franchise Corp. (1998).

Franchising [3] Franchise contract can specify Franchisee’s type of business entity including capital structure, sales quotas and record keeping. Quality Control is a legitimate issue for Franchisor because of good will, reputation and trademark value. Courts will not question Franchisor’s strict supervision but Franchisor may be liable for torts of agents. Case 39.3 Miller v. D.F.Zee’s Inc. (1998).

Law on the Web U.S. Small Business Administration online. Federal Trade Commission and state regulations regarding franchising. Franchising.org Legal Research Exercises on the Web.