Everything You Need to Know About Franchise Law

Trending 2 months ago

Franchising is 1 of nan champion ways for entrepreneurs to jump into nan business world. From restaurants to gyms to unit stores, becoming a franchisee allows you to activity pinch an established brand, return advantage of a proven business exemplary and person ongoing training and support.

But what precisely does franchising mean? And what are immoderate of nan ineligible ramifications you should beryllium alert of?

At its core, franchising is simply a ineligible statement betwixt a franchisor and a franchisee — and it comes pinch a group of governing regulations. These regulations, which protect some nan franchisor and franchisee, are referred to arsenic franchise laws.

Here's an overview of what you should cognize astir franchise rule earlier becoming a franchisee.

Related: We Crunched 5 Years of Franchise Industry Data. Here Are 4 Big Trends You Should Know About.

What are franchise laws?

Franchise laws are a operation of national and authorities laws that modulate nan registration, connection and waste of franchises, arsenic good arsenic nan legal narration betwixt franchisors and franchisees.

The volition is to protect and create safeguards for franchisees from franchisors and to guarantee transparency successful nan franchising process. Similar to different laws that person national and authorities input, franchise laws are governed by a communal national element: compliance pinch nan Federal Trade Commission's Franchise Rule. States whitethorn person added laws and protections, but that varies from authorities to state.

Related: Owning a Franchise Could Be Your Fastest Route to Business Ownership. Here's What You Need to Know to Succeed.

What is nan Franchise Rule?

The Franchise Rule is enforced by nan Federal Trade Commission (FTC), an independent United States authorities agency.

Think of nan Franchise Rule arsenic an overarching national law that governs each franchise transactions successful nan United States. The Franchise Rule falls nether nan FTC's jurisdiction because nan FTC useful to forestall fraudulent, deceptive and unfair business practices.

The crux of nan Franchise Rule and nan FTC's enforcement of it lies wrong nan request for a franchisor to supply a franchise disclosure archive earlier nan connection aliases waste of immoderate franchise.

Related: 23 Questions to Ask a Franchisor When You Meet Face to Face

What is nan franchise disclosure document?

The franchise disclosure archive (FDD) is simply a broad statement that includes elaborate accusation astir nan franchisor and nan wide franchise opportunity.

The FDD is required to see information astir nan franchisor's history, really nan franchise strategy operates, nan required first investment, ongoing royalties and different fees, territory restrictions and different important specifications related to nan franchise.

The FDD is provided to imaginable franchisees earlier nan franchisor and franchisee participate into a ineligible franchise agreement.

That said, nan extremity of nan FDD is to thief franchisees make an informed determination astir nan franchise arsenic a full — and whether aliases not to put successful it.

Related: The 4 Biggest Myths About Franchising

Time to reappraisal nan FDD

The Franchise Rule dictates that nan franchisor must supply nan FDD to imaginable franchisees nary little than 14 almanac days earlier franchisees motion immoderate statement aliases salary immoderate money to nan franchisor.

Within those 2 weeks, franchisees are encouraged to reappraisal nan FDD pinch their franchise lawyers and financial advisors earlier making a decision.

Related: Which Franchise is Right For You? Follow These Steps

Investigating violations of nan Franchise Rule

It's nan FTC's correct to enforce nan Franchise Rule by investigating franchisors that neglect to supply nan required disclosure documents, supply incomplete disclosure documents, misrepresent accusation successful nan disclosure documents aliases engage successful different deceptive aliases unfair practices, whether purposefully aliases accidentally.

After an investigation, nan FTC tin return ineligible action against franchisors that break nan Franchise Rule. Consequences of specified violations see fines from nan FTC, but they tin besides lead to backstage lawsuits from nan franchisee.

What to cognize astir franchise laws

In summation to nan Franchise Rule, each authorities has its ain group of franchise laws that must beryllium followed. Differing by state, authorities franchise laws could require further disclosures and archiving aliases supply further protections for franchisees.

Franchisors must comply pinch some national and authorities franchise laws to legally connection franchises successful nan United States.

Protecting franchisors and franchisees

Franchise laws are an integral portion of nan franchising industry, providing protections for some franchisors and franchisees. The Federal Trade Commission enforces nan Franchise Rule, truthful it's basal for each franchisors and franchisees to comply pinch nan rule.

Keep successful mind that location whitethorn beryllium different laws and regulations franchisors and franchisees must comply with, truthful nan best believe is to cheque pinch a section ineligible professional.

Related: Considering franchise ownership? Get started now and return this quiz to find your personalized database of franchises that lucifer your lifestyle, interests and budget.