Small Business Franchise Act or SBFA Law and Legal Definition

The Small Business Franchise Act (SBFA) was proposed in 1999 by the U.S. House of Representatives as an attempt to ensure more consistent and fair interactions between franchisors and franchisees. It establishes uniform standards of conduct in franchise relationships between franchisors and small business entrepreneurs. It puts in place certain safeguards designed to eliminate fraud and other activities that might exploit franchisee investors.

The highlights of the SBFA are:

It requires both franchisors and franchisees to act truthfully and in good faith in all of their dealings and observe reasonable standards of fair dealing in the trade.

A franchisor cannot require any term or condition in a franchise agreement, which violates SBFA.

It protects franchise from termination without good cause.

It offers protection to the franchisee concerning the placement of the franchise.

It requires the franchisees to be given 30 day's notice of the franchisor's transfer of ownership to another entity.

It allows an attorney general to bring a civil action on behalf of its residents in an appropriate U.S. District Court, if there is reason to believe that the interests of that state have been or are being threatened or adversely affected as a franchisor has engaged or is engaging in a pattern which violates the SBFA.

It allows the franchisee to obtain goods and services from sources of the franchisee's choosing, as long as those materials meet reasonable, established, and uniform system-wide quality standards created and enforced by the franchisor.