The article below discusses U.S. franchise law generally.
Please call me to discuss your particular situation.
Franchising - Are You Ready to be "Super-Sized"?
Perhaps you’ve always dreamed of packing in your job and opening
your own business. Maybe you have your own business and see the
potential for expanding it into a chain. In either case, chances
are that you will consider franchising at some point.
Franchises can appear extremely attractive for both potential
franchisees or franchisors. A potential franchisee purchases
proven know-how and training together with a well known trade mark
and, hopefully a recipe for success. Similarly, a potential
franchisor has the opportunity to expand his business without
putting up additional capital, all while receiving royalties and
franchise payments. Sounds like a win-win situation and most times
it is, but like all financial matters there are potential
pit-falls that need to be avoided.
Franchise offerings in the United States are regulated by the
Federal Trade Commission ("FTC") and certain states. Before you can
offer a franchise, you must prepare a disclosure document,
typically a Franchise Disclosure Document ("FDD") (formerly known
as a Uniform Franchise Offering Circular or UFOC), which you
must provide to each potential purchaser. The FDD contains large
amounts of important information including the cost of
establishing the franchise, the franchisor’s experience and
background, the obligations of both parties, as well as audited
financial statements. Preparing an FDD and the audited financial
statements is not a cheap proposition. However, trying to prepare
the FDD "on the cheap" will probably result in litigation
problems for you down the road.
If you are a potential franchisee, you need to review the FDD
extremely carefully - preferably with your attorney and
accountant. In this regard, be sure to call some of the existing
franchisees (who are listed in the FDD) to see what problems, if
any, they have had with the franchise. On the whole, the franchise
agreements tend to be "take it or leave it" propositions, but you
may have some leeway with newer and less well known franchises.
Particular items to pay attention in the agreement are: (1)
whether the franchisor can open up stores or grant franchises
close to your location; (2) the extent to which you will have to
renovate the franchise upon renewal (this can be very expensive);
and (3) what type of dispute mechanism (e.g., arbitration) you
will be forced to use.
If you are the potential franchisor, you need to make sure that
your FDD is complete, true and correct. Rest assured that any
error or omission will be used against you by a dissatisfied
franchisee in any litigation. Additionally, several states
require you to register your franchise offering in their
particular state.
Franchises can be financially rewarding for all involved. To
make sure that you are one of the success stories, just remember
to consult with your attorney and accountant before taking the
plunge!
