Franchising a business-what does the new Amended Rule Require?

 Franchising a business can be a good strategy to grow your business enterprise.  A successful franchising strategy depends upon the franchisors ability to create replicable business models with scalable growth.  Typically, a Franchisor is able to provide a Franchisee with its knowledge, expertise, business models, manuals, intellectual property (trademarks, patents, trade secrets, and/or copyrights) and other similar resources. 

 A Franchisee typically brings his, her, or its own resources, labor, previous business experience, capital and motivation to own a successful business enterprise.  However, a franchise may have to be registered with the FTC and often the Attorney General’s Office of the State, in which it operates.  There have been some recent amendments to the Franchise registration and disclosure rules that should be noted. 

For example, Franchisors must disclose material information, such as, background information on the Franchisor, the costs of entering into the business, the legal obligations of the franchisor and franchisee, statistics on franchised and company owned outlets, to prospective franchisees.  Moreover, if there are representations made about financial performance there must be reasonable substantiation and disclosures relating to the financial figures provided to prospective franchisees.  Often financial representations have to be amended and modified on a periodic basis to avoid providing false or misleading information. 

Franchising is still a fantastic method for growing your business; however, understanding the nuisances of the disclosures and material information that must be provided to prospective franchisees is crucial to a successful franchising strategy.  Undertaking the proper steps to comply with the FTC’s amended rules can often help avoid penalties, as well as, litigation with franchisees and claims for breach of franchise agreements.  

If you have any concerns or questions regarding adopting an appropriate Franchising strategy, then feel free to contact us.

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