Legal Technicalities of Starting a Franchise Business

home based franchise business

Many franchise of the one by the state rules and regulations that control the sale and functioning of franchisees in the state. When the state laws are absent, the franchise is usually governed by the federal law. In most cases the franchising laws and regulations actually protect the franchisor and not the franchisee. Here are some of the common legal issues that you should be aware of when buying into a franchise system.

The Uniform Franchise Offering Circular, UFOC

In states that do not have their own franchising laws, the Federal Trade Commission has established a comprehensive code of regulations that are referred to as franchise rules. One of these rules states that the franchisor is required to provide prospective franchisees with with the detailed disclosure in a statement called the uniform franchise offering circular.

This is circular or document contains a wealth of information regarding the parent company and its franchise offer. You should make sure to get a copy of this document before you even consider signing on for the franchise company. The information contained in the telephone franchise offering circular has a direct impact on your decision to buy into a particular franchise opportunity or not.

The uniform franchise offering circular contains the following information.

  1. The franchisors name.
  2. Complete and accurate as description of the business.
  3. A listing of people affiliated with the franchisor.
  4. Background information and principals in the company including business experience and track record.
  5. The franchise’s financial information.
  6. Detailed information about the number of franchisees, the failure rate, termination rate. You should also know that the failure of a franchise is means that the company closed its business due to financial reasons to stop some franchise companies may prevent this from happening by the acquiring the franchise from the franchise holder. The franchise is terminated but is technically not a failure. This helps in keeping the statistics looking good on paper.
  7. Bankruptcy and litigation history of the franchise and the principal officers.
  8. The franchisee fee.
  9. Ongoing fees royalties and other payments to be paid to the franchisor. An itemized list of goods and services that must be purchased, rented or leased directly from the franchisor.
  10. Terms of franchisor provided financing.
  11. Restrictions on how you are to a operate the business.
  12. Training programs available from the franchisee.
  13. Information governing the termination of the franchise.

For additional information on franchising laws and regulations you can consult your state attorney general office or contact the Federal Trade Commission at www.ftc.gov.

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