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An accidental franchise can arise in business arrangements when the parties and their attorneys overlook or fail to understand a state's licensing, distribution, or franchise agreement requirements. No company wants to face unanticipated legal and financial liability due to the courts declaring the business arrangement a franchise instead of the licensing agreement or distributorship it was intended to be.
Benjamin Franklin could be called the “American Father of Commercial Franchising.” In 1731, he and Thomas Whitmarsh agreed that Whitmarsh would open a printing business in Charleston, South Carolina. Franklin sold paper and printing equipment to Whitmarsh while agreeing to a non-compete with Franklin. The author of Poor Richard’s Almanac subsequently established similar relationships in multiple states (New York, Rhode Island, Pennsylvania, Massachusetts, North Carolina, and Georgia) and several countries (Antigua, Jamaica, Canada, and Great Britain). Thus, starting one of the earliest known examples of a franchise network.
At its core a franchise is a relationship between a franchisor and a franchisee. That relationship is governed by a legal document known as the franchise agreement. A franchise agreement establishes the ground rules for running a successful operation as a unit of the franchisor’s network.
