Legal Issues in Franchising

Franchising Lawyer

Regulations of franchising in the U.S. follow the federal system that applies to most legal matters in this country. Federal Trade Commission rules apply to franchising in all 50 states and the District of Columbia .

The Franchise Rule generally applies to anyone offering, selling or distributing goods, commodities or services where they:

• Provide a significant assistance in the customer's method of operation;
• Charge a fee for their services; and
• Have a trademark, trade name, advertising or other commercial symbol which the recipient can use in its business according to www.whichfranchise.org.

A document called a ‘Uniform Franchise Offering Circular, or UFOC follow a format which includes the information required under the Franchise Rule and state rules. The Franchise Rule is basically a disclosure rule that spells out to prospective franchisees detailed information such as a list of existing franchisees and their contact information, history and business experience of the franchisor's directors and officers, they must disclose adverse regulatory orders or actions, financial history and data and a statement of inventory, equipment and real estate being provided among numerous other disclosures. These disclosures are required to be provided to the prospective franchisee in advance of any contract execution in the UFOC document.

Uniform Franchise Offering Circular

Franchisors are required to file the UFOC's with the states requiring registration by franchise sellers. If a franchisor wants to file in several states at the same time, he can begin a process called Coordinated Review where a franchisor may file for registration in several states at the same time with the review being assigned to one examiner from a single state and that examiner coordinates comments from the various states.

In addition to requirements concerning franchisors, some businesses, such as product dealerships, can be considered business opportunities under the Franchise Rule and still be subject to regulations of states and countries.

Franchisers and buyers do have legal remedies available to them in case of disputes. The pillar of the U.S. franchise regulatory rules is disclosure and many legal disputes arise when the franchisee claims that disclosures were inadequate or inaccurate or the franchisor failed to live up to its contractual obligations or sales claims, according to www.whichfranchise.org.

Another important legal document is the franchise agreement. This is a document that is binding on both parties and lays out the rights and the obligations of each party. The agreement should contain provisions covering in detail the obligations of the franchisor and the franchisee relative to the operating of the business. It should also detail the training and operational support the franchise will provide you, where you can locate your store, how you must deal with the business as many franchises have their way and only their way of doing business which you must follow.

There is no standard form for this agreement as the terms, conditions and methods of operations vary widely depending on the type of business involved.

It is always a good idea to make sure you understand everything about the franchise, what your obligations are and retain a lawyer to make sure you are complying to the rules and regulations you agreed to and to protect yourself from unscrupulous franchisors.