If I was doing a franchise business but couldn’t afford it anymore so decided to leave the franchise and do my own business, am I allow to do that?

The business is not doing well and have I have to put money in every month. If I am doing a same type of business as the franchise, just that I am not using their brand and license, I am on my own. And I am doing the business at the same rental space because I signed a lease for 10 years.

Asked on August 12, 2014 under Business Law, New Jersey


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

There is no general answer, because of critical importance are the exact terms, conditions, and provisions of the franchise agreement and any other documents you signed in opening the  franchise. If they contain terms, for example, which restrict you from conducting  the same type of business within a certain geographic area, or for some number of months or years after ceasing to be a franchise, such terms are generally enforceable and would preclude you from doing what you want. For a definitive answer, you must have an attorney analyze the franchise agreement and any other contracts, especially in regards to any restrictive covenants or non-competition clauses.

The above said, there are some general principals that could also restrict you:

1) You may not use any thing learned or obtained as a franchisee, such as customer lists, proprietory business processes or techniques, etc. You were only given access to such to run a franchise; the law does not allow you to take another's trade secrets and use them for your own benefit.

2) You may not operate in any way that suggests a connection between you and the franchise after you are no longer a franchisee. This goes beyond not using their brands (though this is a good start).

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