Rarely are franchisees scammers, but occasionally, unscrupulous franchisees have been known to take advantage of consumers and the franchisors alike. As a result, franchisors have developed mechanisms to prevent harm. Despite best efforts, folks who should not be franchisees end up as franchisees. The franchisor must become proactive in preventing further infiltration of its brand.
Several reasons support strong franchisor controls over ownership and transfers. The identities of individuals representing the franchisor and benefiting from participation in the franchise system are important to a franchisor, as in McDonald’s v. Mazur, Business Franchise Guide (CCH) ¶ 8256 (App. Ill. 1984). The issue is control of the brand and they system to eliminate threats posed by outsiders, as in PPR Realty v. Croushore & Sosso, 204 F.3d 867,875 (9th Cir. 2000). In Mazur, the franchise agreement makes no distinction between active and passive shareholders. To McDonald’s in Mazur, the integrity of the franchisee and its identity is the key control over the future of the brand.
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