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The Judge
The Judge, Business Law Attorney
Category: Business Law
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Experience:  Active business lawyer, business owner, & former judge. Over 30 years experience in business law.
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Sales person, distributorship or franchise

Resolved Question:

I have recently set up a small business selling a wholesale product to retailers. I wish to expand my sales into regions away from my own, and will need someone to do the selling for me in these areas.   I read online that the FTC has strict rules about offering someone a business opportunity. I assumed this would be much simpler than it now appears after reading the FTC article. Does a sales person have to be an employee? In other words, can they merely be like subcontractors who work independently on commission?
Submitted: 6 years ago.
Category: Business Law
Expert:  The Judge replied 6 years ago.
Hello jony,

The key to your problem is how you structure the relationship with the third party.

If their function is strictly sales, it is fairly easy to draft an independent contractor agreement whereby they are compensated solely on performance like a subcontractor who works independently on commission. If you choose this route, it is very important, for tax purposes, that they truly are independent and you do not control how they do their work. The FTC will not be concerned with this arrangement. It is just a job and the third party is an independent contractor and not an employee.

On the other hand, if the distributor is going to have to purchase inventory from you and then try to resell to the retailer, the FTC is going to require substantial disclosure before the third party "invests" in the business opportunity. There are many, many varitations on this type of arrangement. But the botXXXXX XXXXXne is that the government is going to require substantial disclosure to the "investor."

The key difference between the two relationships that I described is whether or not the third party is paying you or your company any money before the sale.

The third option that you mention, franchise, is heavily regulated and you should definitely consult an experienced franchise lawyer before you attempt this.

I hope this anwers your questions. If there is anything you do not understand, please let me know and I will be happy to elaborate.

In the meantime, please click "Accept" so that I may be paid for my answer and any subsequent follow ups with you.

Thank you,

The Judge
The Judge, Business Law Attorney
Category: Business Law
Satisfied Customers: 703
Experience: Active business lawyer, business owner, & former judge. Over 30 years experience in business law.
The Judge and 4 other Business Law Specialists are ready to help you
Customer: replied 6 years ago.
Thank you for your very helpful answer. Your answer has made much of what I was reading.

Can you possibly summarize some of the defining characteristics of the sales person relationship, or point me to some reference material that might do this for me? My interest here is to find as much detail as possible about how transactions would be made so as not to confuse them with a distributor relationship.

I understand the basic concept of the difference between an employee and a subcontractor, in the sense that the subcontractor must have other work besides mine, and must not be controlled. I guess what concerns me here is to what extent one risks weakening a trademark on a product by allowing subcontractors to sell it rather than employees who must follow company standards precisely. This is why I am looking at all 3 possible arrangements: sales person, distributor or franchisee. While I naturally favor the easiest method, I do want to preserve the trademark.

Thank you again for your helpl.

jony

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