On this page
What is the U.S. business getting from you?
Name what can be transferred: equipment, software, a service capability, a method, know-how, a brand or access to customers. Ask why a competent U.S. business would pay for it rather than use an existing alternative. Bring evidence of the difference and the work needed to reproduce it locally.
Then name the jobs: who wins the customer, signs the contract, provides the work, answers technical problems and pays before collection. Canada’s Trade Commissioner Service uses company capability, buying behaviour, capital and control as entry-mode considerations. Its framework is commercial guidance for Canadian exporters, not a U.S. legal conclusion.
Compare the proposal, not a universal ranking
Use the table to write down your proposed allocation. Actual agreements can combine these arrangements: a distributor may receive a software licence; a joint venture may use a subsidiary; a branded operating arrangement may also meet franchise tests.
| Arrangement being discussed | Rights and customer work | Parent work and capital to budget | Income and exit questions |
|---|---|---|---|
| Distributor | Buys for resale, for example equipment; agree any service or IP rights and identify who owns the customer contract. | Supply, onboarding, credit, warranty and technical support as allocated. | Model supplier and reseller costs separately. Agree accounts, stock, returns, exclusivity and transition. |
| Licence | Permission to use defined IP, software or know-how. Name the entity that sells and delivers to customers. | Maintain the promised rights and support, and define quality responsibilities. | Test fees against both sides’ costs. Agree continued access, customer work and IP use when it ends. |
| Franchise arrangement | A relationship that meets the applicable definition; its operating rights and customer contracts still need specifying. | Budget for actual sales/disclosure duties, training and continuing support; check federal and state questions separately. | Compare local profit after management/fees with retained fees after support. Check changes, exit and non-waivable rights. |
| Joint venture | The parties agree contributions and shared decisions; identify whether a venture entity or one of the partners contracts. | Capital, staff, technology and management time each side commits. | Model returns, losses and further funding. Agree reserved decisions, deadlock, buyout and ongoing customer obligations. |
| U.S. subsidiary | A parent-controlled company. Record its actual customer, employment and intercompany contracts. | Fund and staff its sales/delivery work and parent oversight; check company, tax and operating obligations. | Model local profit and separate parent payments. Available company profit is not automatically cash the parent can withdraw. |
One equipment offer can lead to different work
Fictional example: a European equipment business has a diagnostic method and specialist training. A U.S. service company already has technicians and customer relationships. Reselling equipment does not by itself establish who diagnoses faults, trains replacement technicians or funds warranty visits.
Compare a purchase-and-service proposal with a licence-and-support proposal using the same customer scope, staffing assumptions and payment dates. If the method cannot be taught reliably, or customers will not pay for the difference, changing the contract label does not solve the problem. Narrow the test or postpone the commitment.
Put the two businesses’ economics beside each other
For the U.S. operator, include local sales effort, a manager, technicians, parts, insurance, travel, rework and fees. For the overseas business, include onboarding, training, quality work, technical exceptions, travel and the share of fees it actually retains.
A higher royalty can improve one side while damaging the other. Run the same revenue and fee assumptions through U.S. unit economics and Brand & master support, then put receipts and bills into Cash runway. Tax held back from a payment reduces cash received; a withholding input does not calculate the final tax bill. Invoiced revenue is not cash received.
What management must resolve before the owner commits
Bring a short proposal naming the transferable value, responsible businesses and people, customer/account rights, capital at risk, support workload and the evidence still missing. Give the next test a budget, a decision date and a person responsible. Include a pause outcome.
Have the actual contracts and conduct checked for franchise coverage and any exemptions, connected-state duties, IP, tax, work permission and activity-specific operating requirements. The federal franchise definition examines the complete relationship, whatever it is called; forming a company or running a small paid pilot does not settle those separate questions.
Scope
- This is a commercial comparison, not a ranking, tax structure recommendation, legal classification or finding that any option suits a particular company. Contract rights, legal entity form, franchise coverage and work permission are separate questions.
- The equipment scenario is fictional. No typical costs, royalties, margins, time-to-market or success forecasts are supplied. Canadian exporter guidance is not U.S. law or a promise of support eligibility.
Next step
Use the Relationship factsheet to describe the actual rights, parties, payments, support and control. Compare the unit and support economics before committing to a model or asking a specialist to assess the same proposal.
Terms used here
- Subsidiary
- A company controlled by another company. A U.S. subsidiary still needs people, funding and agreements for the work it actually does.
- Joint venture (JV)
- A collaboration in which the parties agree what each contributes and how decisions and returns are shared. The legal form and agreements need their own review.
Sources & review notes
Global Affairs Canada — Trade Commissioner Service
Passage, dates and research notes
official-guidance · Entry-mode workflow; traditional distributor, local presence and strategic-partner comparisons
What your company can realistically support.
Canadian exporter guidance used as a general commercial decision framework, not U.S. law or an eligibility statement for its support services. Read complete workflow and traditional-entry sections plus hybrid context. ELN’s comparison questions and fictional equipment example are original; no universal cost, margin, timing or success ratings adopted.
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.
Federal Trade Commission
Passage, dates and research notes
primary · section-436.8
less than $735
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
- Qargo Coffee: licence language did not end the FTC’s franchise allegation
- Tristel’s U.S. partner: manufacturing, distribution and royalties
- Tesco’s Fresh & Easy exit: decide when to stop U.S. spending
- Aston Martin and Lucid: an access fee is not the whole supply commitment
- IKEA’s U.S. formats: decide what the local store must actually do
Bookmark this guide or mark it as read.
Progress privacy
Saving is off by default. Without it, progress lasts only on this page. If you turn it on, this browser profile stores public content IDs and the progress you record. Anyone sharing the profile could see them. No plan inputs or contact details are included. Reset or export in learning settings.
This is a reading aid, not evidence of disclosure delivery, expertise or legal approval.