Fictional business and illustrative assumptions; these are not reported results or a forecast.
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Employees and independent owners need different support
The candidate has supervisors, customer retention and multi-branch delivery. Those strengths support its own-unit role. They do not establish that it can assess franchise buyers, administer permitted sales and disclosure, train owners or fund continuing field support.
Before dividing royalties, decide who will deliver those additional services and whether continuing income can pay for them if no new territory fees arrive. Branch profits or an attractive fee split do not answer that question without the actual costs.
Choose the role before granting wider rights
Own-unit development first, a narrower master role, building support capability or pausing are possible commercial choices. The detailed comparison is in the master-franchise versus area-development guide below.
The legal analysis follows the functions. The federal franchisor definition includes subfranchisors engaging in the relevant pre-sale and post-sale activities. Calling the arrangement development, master or licence does not settle definitions, exemptions or independent state requirements, including before recruitment.
Scope
- Fictional capability example, with no budget, earnings result or legal clearance for the proposed arrangement.
Next step
Choose between operating more units and recruiting independent owners before negotiating the fee split.
Sources & review notes
Federal Trade Commission
Passage, dates and research notes
primary · section-436.1
whatever it may be called
Current eCFR displayed through 2026-11-09; eCFR is authoritative but not the official legal edition.
U.S. Small Business Administration
Passage, dates and research notes
official-guidance · Start with a balance sheet; accounting methods
The balance sheet is the foundation of managing your finances.
Supports bookkeeping and cash/accrual distinction; fictional capital and cash-flow examples are original assumptions, not SBA benchmarks.
Detailed rule records (1)
A continuing commercial relationship can meet the federal definition where it involves trademark association, significant control or assistance over the method of operation, and a required payment or commitment. Apply exemptions separately.
16 CFR §436.1: Federal franchise definitionRelated case records
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