FRANCHISE
A special privilege to do certain things that is con-
ferred by government on an individual or a corpo-
ration and which does not belong to citizens
generally of common right, e.g., a right granted to
offer CABLE TELEVISION service.
A privilege granted or sold, such as to use a
name or to sell products or services. In its simplest
terms, a franchise is a license from the owner of a
TRADEMARK or TRADE NAME permitting another
to sell a product or service under that name or
mark. More broadly stated, a franchise has
evolved into an elaborate agreement under which
the franchisee undertakes to conduct a business or
sell a product or service in accordance with meth-
ods and procedures prescribed by the franchisor,
and the franchisor undertakes to assist the fran-
chisee through advertising, promotion, and other
advisory services.
The right of suffrage; the right or privilege of
voting in public elections. Such right is guaranteed
by the Fifteenth, Nineteenth, and Twenty-fourth
Amendments to the U.S. Constitution.
As granted by a professional sports association,
franchise is a privilege to field a team in a given
geographic area under the auspices of the league
that issues it. It is merely an incorporeal right.
Government Franchises
The consideration that is given by a person
or corporation in order to receive a franchise
from the government can be an agreement to
pay money, to bear some burden, or to perform
a public duty. The primary objective of all grants
of franchises is to benefit the public; the rights
or interests of the grantee, the franchisee, are
secondary. A corporation is a franchise, and the
various powers conferred on it are also fran-
chises, such as the power of an insurance corpo-
ration to issue an insurance policy.Various types
of business—such as water companies, gas and
electric companies, bridge and tunnel authori-
ties, taxi companies, along with all types of cor-
porations—operate under franchises.
The charter of a corporation is also called its
general franchise. A franchise tax is a tax
imposed by the state on the right and privilege
of conducting business as a corporation for the
purposes for which it was created and in the
conditions that surround it.
Power to Grant The power to grant fran-
chises is vested in the legislative department of
the government, subject to limitations imposed
by the state constitution. A franchise can be
derived indirectly from the state through the
agency that has been duly designated for that
purpose, such as the local transportation agency
that can grant a franchise for bus routes. Fran-
chises are usually conferred on corporations, but
natural persons can also acquire them. The
grant of a franchise frequently contains express
conditions and stipulations that the grantee, or
holder, of the franchise must perform.
Not every privilege granted by a governmen-
tal authority is a franchise. A franchise differs
from a license, which is merely a personal privi-
lege or temporary permission to do something;
it can be revoked and can be derived from a
source other than the legislature or state agen-
cies. A franchise differs from a lease, which is a
contract for the possession and profits of prop-
erty in exchange for the payment of rent.
Regulation Once a franchise is granted, its
exercise is usually subject to regulation by the
state or some duly authorized body. In the exer-
cise of police power—which is the authority of
the state to legislate to protect the health, safety,
welfare, and morals of its citizens—local author-
ities or the political subdivisions of the state can
regulate the grant or exercise of franchises.
Right to Compete While a franchise can be
exclusive, exclusiveness is not a necessary ele-
ment of it. Nonexclusive franchises—including
those to function or operate as a public utility—
do not include the right to be free of competi-
tion. The grant of such a franchise does not
prevent the grant of a similar franchise to
another entity, or lawful competition on the part
of public authorities. The holder of a nonexclu-
sive franchise is entitled to be free from the com-
petition of an entity that does not have a valid
franchise to compete. The holder can institute a
proceeding for an injunction—a court order
that commands or prohibits a certain act—and
monetary damages for the unlawful invasion of
the franchise.
Duration The legislature can prescribe the
duration of a franchise. The powers of local
authorities or political subdivisions of the state
depend upon the statute that confers the power
to make grants and upon any constitutional lim-
itation.
A franchise can be terminated by the mutual
agreement of the state that is the franchisor, and
the grantee or the franchisee. It can be lost by
ABANDONMENT, such as when a corporation
dissolves because of its fiscal problems. A mere
change in the government organization of a
political subdivision of a state does not divest
franchise rights that have been previously
acquired with the consent of local authorities. A
franchise cannot be revoked arbitrarily unless
that power has been reserved by the legislature
or proper agency.
Forfeiture A franchise can be subject to
FORFEITURE due to nonuse.Misuse or failure to
provide adequate services under the franchise
can also result in its loss. The remedy for nonuse
or misuse lies with the state. Persons other than
the state or public authorities cannot challenge
the validity of the exercise of a franchise unless
they can demonstrate that they have a peculiar
interest in the matter distinct from that of the
general public.
Invasion of the Franchise A person or cor-
poration holding a valid franchise can obtain an
INJUNCTION to prevent the unlawful invasion of
the franchise rights and can sue for monetary
damages if there has been financial loss as a
result of the infringement.
Transfer of Franchises Subject to applicable
constitutional or statutory limitation, franchises
can be sold or transferred.Where the franchises
involve public service, they cannot be sold or
transferred unless there is authorization by the
state. The person or corporation purchasing the
franchise in an authorized sale takes it subject to
its restrictions.
Private Franchises
Certain written contractual agreements are
sometimes loosely referred to as franchises,
although they lack the essential elements in that
they are not conferred by any sovereignty. The
