Franchising and Business Opportunities
What is a franchise?
A franchise is any type of business relationship in which the seller (franchisor):
It does not matter what the parties choose to call their business relationship. If it looks like a franchise, it will most likely be regulated like a franchise. It also doesn’t matter whether the franchisor’s promises are oral or in writing (though purchasing a business without a written agreement is always a terrible idea). And it doesn’t matter whether the seller can actually fulfill its promises. We’ve seen a surprising number of small business owners attempt to offer franchise relationships without significant control over their trademarks or the actual means to offer assistance to a franchisee.
Some business relationships that may not quite meet the elements of a franchise are also regulated by state laws addressing business opportunities. Others, such as one-on-one licensing agreements, may meet each of the elements above, but the law does not regulate such agreements as franchises. In addition, like most areas of the law, there are several exceptions that may apply to your particular business operations, including: fractional franchises, leased departments, large franchises, and insiders, among other exemptions. And there are variations in the laws of different states that can also impact whether a particular business relationship is a franchise or not.
What steps are involved in franchising a business?
Franchising a business requires meeting complex legal requirements at both the federal and state levels.
What should I consider before buying a franchise?
Before purchasing a franchise, you should carefully review both the FDD and the franchise agreement. These documents contain important information designed to make sure prospective franchisees aren’t being deceived or misled.