Question

Caffeine Coffee Shops, Inc., sells franchises. Caffeine imposes on its fran­chi­sees standards of operation and personnel training methods. What is the potential pitfall to Caffeine if it exercises too much control over its fran­chisees? What type of control would be too much. What defenses would Caffeine Shops have against any claims? What type of business entity is Caffeine Shops and why does it matter? Can the control and liability be addressed in the franchise agreement? Why or why not?

Answer 1

Franchising is a marketing concept of business expansion.

Step-by-step explanation:

There can be a potential danger or risk to the Caffeine Coffee Shops, Inc. if the shop tries to exercise much control over its franchisees. Imposing too much restrictions and control will lead the liability of the franchisor for the wrongful acts of the employees of the franchisee. The franchisee can even think of breaking the contract or the agreement and may put a clai against the franchisor.

The Caffeine Coffee Shop does not have any defenses, it can claim that the franchisee is trying to breach the agreement against the rules of the agreement. The Caffeine shops have limited liabilities and does not require any shareholder meetings, or board of directors or other management formalities.

Yes it is true that in the franchisee agreement, control as well as liability is to be addressed by framing the agreements and clauses in a manner that will define to what extent the franchisor can have control over the franchisee and what is the level of the liability of the franchisee.