List Your Business

Franchise Legal Considerations

One of the most important events in franchising is the introduction of the Franchise Rule on October 21, 1979 by the Federal Trade Commission (FTC). The FTC Franchise Rule requires all franchisors operating anywhere in the U.S. to make full disclosure of the information that a prospective franchisee needs in order to make a rational decision about whether or not to invest.
In effect, the rule obliges franchisors to meet certain FTC standards, such as ensuring that a reasonable basis for any claims exists, that the disclosure has been prepared in accordance with accepted accounting principles, and that there is evidence to support the financial claims, and that the franchisee, among others, can see this evidence.
In particular, the disclosure rule requires that the franchisor provide information about:
  1. The franchisor and its affiliates, describing the business experience of each of its officers, directors, and management personnel responsible for franchise services, training, and other aspects of its program.
  2. Any lawsuits or previous bankruptcies in which the franchisor, its officers, directors, and management personnel have been involved.
  3. Initial franchise fees and other payments required to obtain a franchise, and a description of continuing payments to be made after the franchise opens.
  4. Any restrictions on the quality of goods and services used by the franchisee and where they may be purchased, including restrictions requiring purchases to be made from the franchisor or its affiliates.
  5. Any assistance available from the franchisor or its affiliates in financing the purchase of the franchise.
  6. Restrictions on the goods or services franchisees are allowed to sell and any restrictions on the customers with whom they may deal.
  7. Any territorial protection to be granted the franchisee.
  8. The conditions under which the franchise may be repurchased or refusal renewal by the franchisor, transferred to a third party by the franchisee, and terminated or modified by either party.
  9. Any training programs provided to the franchisees.
  10. Any involvement of any celebrity or public figures in the franchise.
  11. Any assistance provided by the franchisor in selecting the site for the franchisee.
  13. The number of present franchises, franchises projected for the future, franchises terminated or not to be renewed, and the number repurchased in the past.
  14. The financial statements of the franchisors.
  15. The extent to which franchisees must personally participate in the operation of the franchise.
  16. The basis for any earnings claims made to the franchisee, including the percentage of existing franchises that have achieved the results claimed.
  17. The names and addresses of other franchisees.
This disclosure must occur at the first contact with the franchisor, franchise broker, or anyone who represents the franchise for sale, where the subject of buying a franchise is discussed. The disclosure must be at least ten business days before the signing of any franchise or related contract or payment to the franchisor.
Although the FTC does not require registration from franchisor, several states do have registration rules requiring franchise sellers to register. Most states have adopted the Uniform Franchise Circular Offering (UFOC) guidelines for their disclosure requirements, but as a potential franchisee, do not assume that if a franchise is registered with the state or provides some type of full disclosure document, you are protected from the possibility of a failure or rip-off. You must use common sense and do your research!
*Information above provided by

This content was sponsored by:

Crescent Movers
6321 N. Cicero Ave, Unit A
Chicago, IL 60646
Diamond Physicans
8222 Douglas Ave
Dallas, TX 75225
Turtle Roofing
8404 Sterling St #1
Irving, TX 75063
Own A Quiznos
7595 Technology Way
Denver, CO 80237
Johnson Construction Company LLC
1707 N West St.
Lima, OH 45801
Drytech Restoration Services
80 Central Ave.
Spring City, PA 19475
Keys to Assessing a Franchise Business Plan
How to Avoid Buying a Franchise that Might Go Under
Bank Loans for Buying a Franchise
10 Common Mistakes of Prospective Franchisees
Negotiating The Franchise Agreement
Do Franchises Limit Competition?
When to Run from Your Franchise Broker
Factors That Affect A Good Franchise Site Location
Getting The Most Out Of A Franchise
How To Buy A Franchise
Pros and Cons of Franchise Businesses
A Checklist of Questions to Answer Before You Buy A Franchise
What is Franchising?
Five Franchise Tips
Franchise Tips
Should You Buy a Franchise
Starting A Franchise
What is Franchising?
Before You Select A Franchise...
Successful Franchising
Wrong Reason to Buy A Franchise
How to Choose an Ethical Franchise
7 Ways to Grow Your Franchise using the Internet
Pros & Cons of Buying A Franchise

In your area: