Is your Business Ready for Franchising? Learn the Legal Requirements.
Out of all the steps, stages and thoughts put into the process of when and how do I franchise my business, understanding the legal implications is of critical importance. There is more to it than just adhering to the franchise legal requirements when it comes to getting your business ready to franchise.
1. Your business needs to be legally established prior to initiating the franchise development process.
A. Make sure your corporate entity is filed or incorporated as a legal entity, you should not be a sole proprietorship which would leave you open to liability in a lot of ways should something go wrong in your day to day business.
B. Franchising requires that you establish a separate business entity from which to offer the franchises for several reasons. You should take this precaution in establishing your new franchise brand and company.
C. Protect your brand and your name – file the necessary trademarks and service marks to protect your system from other’s copying or stealing your intellectual property and brand equity.
2. Franchising is governed by the Federal Trade Commission in the U.S. and in order to legally sell franchises anywhere in the United States, your business must complete and successfully register a Franchise Disclosure Document with the Federal Trade Commission.
A. You need to make sure that in the FDD, you provide the necessary wide range of information about your business, including audited financial statements (in most states), background on the principals in the company in addition to other information related to the franchise offering.
B. Beyond the federal FDD requirements, several of the states have their own rules for selling franchises. California, New York, Illinois, Maryland and Virginia has generally tight registration rules and need special attention for obtaining licensing in order to offer franchises there.