Franchise Legal Work and Requirements

What is required for a company to become a franchise system? Legally the Federal Trade Commission is the federal organization that oversees franchise sales and growth. The industry has grown a great deal over the past fifty years, along with growth and popularity come regulations and rules for doing business in the franchise world. In the end, it is a very good thing to have tightly knit rules covering the process of franchising a business. Franchise regulations came into place initially to protect the buyer and have since evolved somewhat namely over the past 20 years in franchising. The buyer must be given full disclosure for what type of relationship they are entering into, the full terms of the relationship, what they will receive in conjunction for the fees they pay and who are they getting into business with.

The main franchise contract is the Uniform Franchise Disclosure Document, it is a very similarly structured agreement to that of Securities rules when adhering to SEC Blue Sky Laws when a company goes to raise investor capital. Have you ever heard the phrase, "Good Fences help make Good Neighbors?" For a franchise relationship to be effective and manageable, the franchisor needs to have the appropriate and well defined relationship in place within the franchise agreement. The documents are broken into two pieces, the bulk of this contract is made up of the Franchise Offering Circular, this piece is consists of 23 points of disclosure. Step by step the document walks the potential franchisee through a description of their total investment in the business, the training processes, backgrounds and bios on the owners/managers within the franchisor organization. Everything is disclosed up front to the buyer so no one is potentially "duped" into a franchise purchase. Good franchise sales processes will carefully walk buyers through these sections and explain each part in detail. A Uniform Franchise Disclosure document is intimidating and probably more importantly extremely boring to read. UFDD's have never and will never help with a franchise sale! It is up to the franchisor to explain and make sure that the buyers have an exquisite level of understanding for every part of the Offering Circular.

Once the Offering Circular has been put together and organized, the franchise agreement should legally cement the terms of the contract under which a franchisee is compliant in the franchise relationship. Franchise rules and regulations are all about compliance and disclosure, good drafters and legal counsel can help a new franchisor understand what is necessary and what is not within the franchise agreement. We want to disclose everything that should be given to the buyer under the guidelines of the FTC and nothing more. There have been several updates to the rules over the past year by the Federal Trade Commission, most of which are very good for the franchise industry in general. Before any legal work is drafted or put together, it is my recommendation to work with a franchise consulting firm or franchise consultant to have a business plan and financial analysis done for the franchise to be offered in order to put the documents together efficiently. Franchise rules and regulations are a good thing for franchising, both the franchisor and the franchisee can benefit greatly from well advised franchise companies and solid franchise agreements.

Christopher_Conner

Enter Your Email Address For Update :

Delivered by FeedBurner

Related Post :