A franchise is a business opportunity acquired by one person, called a franchisee, in exchange for a fee paid to another person, the franchisor. The business opportunity may include a business plan, marketing strategies, training, advertising and/or an inventory supply structure. Before selling a franchise, a franchisor must register with the State where the business will be operated and provide the franchisee with certain specific information, called a circular.
While the circulars must be filed with the Department of Financial Institutions, they are not reviewed for compliance with the law. It is vital for the franchisor to make sure its circular complies with the disclosure requirements, to avoid later claims by franchisees that may require repayment of all franchise fees and royalties paid by the franchise.
Having a lawyer review the offering before signing the contract is equally important for the potential franchisee. Some websites describe franchising as "a risk free way of investment." Nothing could be further from the truth. Entering a franchise has many benefits, but will also likely tie your business to the franchisor for years to come through the payment of royalties and other fees, and limit your ability to grow your business in the way you would like. Being informed about the risks and benefits before you enter into a franchise arrangement is simply good business practice. Because the fees paid to a franchisor often run in the tens of thousands of dollars, or more, it is important to have a lawyer review those documents before signing any contract.
Haley Palmersheim is experienced in drafting and filing the necessary registration materials on behalf of a franchisor, as well as reviewing offering circulars for the benefit of a franchisee. Whether you are a franchisor or a franchisee, contact us before you take the key step into franchise.
