what documents are needed to open a franchise

Documents to Start a Franchise

Full Answer

What do you need when you franchise your business?

A good franchise consultant can streamline the process for you when you franchise your business. The first document needed when you franchise your business is a Franchise Disclosure Document (FDD) and Exhibits . The FDD is a required legal instrument that discloses various facts about the franchise company and the Franchise Agreement.

What is a franchise disclosure document?

The FDD is a required legal instrument that discloses various facts about the franchise company and the Franchise Agreement. It must be drafted in a precise manner when you franchise your business.

Do all franchisors have to create two legal documents?

Yes, all Franchisors are required to create two legal documents . However, the format and contents of these documents is clearly spelled out and the process for creating them is not overwhelming. A good franchise consultant can streamline the process for you when you franchise your business.

What are the standard form documents used by franchisees?

There may also be standard form documents used throughout the franchisee network, such as employment contracts, order and booking forms and standard terms and conditions.

How do I open up my own franchise?

Steps to Start a FranchiseStep 1: Research your options. ... Step 2: Select a franchise that aligns with your business goals. ... Step 3: Create an LLC or a corporation. ... Step 4: Arrange financing. ... Step 5: Talk to the franchisors and franchisees. ... Step 6: Talk to members of your community. ... Step 7: Create a business plan.More items...•

What is the most important document in a franchise relationship?

The franchise agreement is the cornerstone of any franchise system. It should adequately address all aspects of the franchise relationship, while protecting the franchise system and enabling the franchisee to use the franchise system for its commercial gain.

What is involved in a franchise agreement?

A franchise agreement is a contract under which the franchisor grants the franchisee the right to operate a business, or offer, sell, or distribute goods or services identified or associated with the franchisor's trademark.

What are the key subjects in the franchise agreement?

Franchise agreements vary between different franchises, but these seven areas should be addressed in every franchise agreement.Use of Trademarks.Location of the Franchise.Term of the Franchise.Franchisee's Fees and Other Payments.Obligations and Duties of the Franchisor.Restriction on Goods and Services Offered.More items...

Why is a franchise disclosure document important?

The purpose of the Franchise Disclosure Document (FDD) is to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision.

What is the importance of building relation in a franchise business?

Relationships are important especially in business, not just as partners but between staff and boss, friends in business as well as with other companies with whom he/she is dealing with. It is the relationship, which overtakes money when it comes to turning an idea to develop it into a huge brand.

What should be the relationship between the franchisee and franchisor?

The franchisor owns the trademark(s) and the operating system for the franchise. The franchisee is licensed to use both the trademark and the operating system according to the terms and conditions set forth in the franchise agreement. Both the franchisor and franchisee must fulfill their obligations under the contract.

What is the importance of trust in a franchise business?

Franchisees need to trust that the franchisor has created a winning road map for success -- and that if they follow it, they will see a return on their investment and grow with the company. After all, that's what both the franchisor and franchisees want: a growing, profitable business.

What is required in a franchise document?

Some of the issues include the Franchisor and its affiliated companies, biographical information about the officers, directors and franchise personnel, litigation and bankruptcy data, the initial franchise fee, on-going royalties, marketing requirements, the anticipated initial investment, Franchisor obligations, territory restrictions, trademarks, copyrights and proprietary information, optional financial performance representations and a discussion of the franchised and company-owned outlets.

What is the first document needed to franchise a business?

The first document needed when you franchise your business is a Franchise Disclosure Document (FDD) and Exhibits . The FDD is a required legal instrument that discloses various facts about the franchise company and the Franchise Agreement. It must be drafted in a precise manner when you franchise your business. There are specific items of information that must be disclosed in a certain format. This document must be written in “plain English”, not in legalize.

What is a franchise agreement?

The Franchise Agreement is the second required legal document when you franchise your business. The Franchisor and Franchise Owner must sign this legal instrument which sets forth all of the mutual obligations of the parties. This is the governing document for the duration of the franchise relationship.

How long do you have to sign a franchise agreement before you can sign it?

When you franchise your business, you must furnish the FDD no later than the first face-to-face meeting with the franchise prospect. A period of 14 calendar days must go by before the franchise prospect is eligible to sign the Franchise Agreement.

Do franchises have to create legal documents?

As a franchise consultant, a comment I often hear is “I’ve been told that when you franchise your business, you have to create extensive legal documents. Is this true?” The answer is yes and no.

Do you need a legal document for a franchise?

Yes, all Franchisors are required to create two legal documents . However, the format and contents of these documents is clearly spelled out and the process for creating them is not overwhelming. A good franchise consultant can streamline the process for you when you franchise your business.

What documents are needed to start a franchise?

There are two ​legally required documents you should become very familiar with before ​franchising your business: the Franchise Disclosure Document, and the Franchise Agreement.

What is a franchise disclosure document?

The Franchise Disclosure Document, also referred to as the FDD, is based on a format required by the Federal Trade Commission, and in some states must be presented to state regulators before you can ​begin to offer franchises. (The Franchise Agreement, which governs the relationship between the franchisor and franchisee, is part of the disclosure document.) The FDD needs to be provided to the prospective franchisee no less than 14 days before they are to sign their franchise agreement, and the franchisee needs to have the completed agreement for at least 7 days. The 7-day period can run at the same time as the 14 days. MSA Worldwide provides a complimentary Franchise Disclosure Compliance Calendar ​as a reference tool for calculating the disclosure timing requirements mandated by FTC regulations and various state laws.

What is a franchise agreement?

The Franchise Agreement is the contract between the franchisor and franchisee, binding them together, and governs the relationship between them. The Franchise Agreement explains what the franchisor (the licensor) expects from the franchise (the licensee) in running the business, and is designed to ensure that all of the franchisees within an organization are treated equitably​. The Franchise Agreement also describes the support that the franchisee will be provided by the franchisor. Always remember that the relationship between franchisor and franchisee is contractual - what you have in your written documents is essential.

What is the FTC rule?

The Federal Trade Commission (FTC) "Franchise Rule" governs franchising in the United States, and requires that franchisors have certain legal documents in order to offer a franchise: the Franchise Disclosure Document (FDD), and the Franchise Agreement.

How many items are in an FDD?

For ​an overview of the 23 Items ​included in an FDD, and the regulations governing franchise disclosure, see our educational videos How to Develop a Franchise System Part 9: How Franchising Works and Part 10: The Regulatory Framework of Franchising.

Do franchisors need to disclose franchisees?

Many who are new to franchising believe that since the government defines the items that must be disclosed to franchisees, that the information provided by a franchisor and the terms of the contract are similar regardless of which franchise system you are looking at. While this is frequently true of franchise systems developed by franchise packaging firms, it's not supposed to be that way; every franchisor needs to determine how it wants to license its brand and system to its franchisees.

Do you have further questions about the legal requirements for franchising your business?

MSA can provide guidance on properly developing your legal franchise documents.

What Is a Franchise?

Put simply, a franchise is a business that’s owned and run by a franchisee or individual but is overseen and branded by a larger parent company or franchisor. Common examples include restaurants and hotels, such as Subway and Hilton Hotels.

What is the fourth requirement for a business?

4. Regulatory or Legal Requirements. A fourth requirement is satisfying any regulatory or legal requirements that the parent business mandates. While sometimes the requirements are simply obtaining permits and a lease, in other situations, it could involve educational requirements or specific licensing. 5.

What is franchising a restaurant?

Franchising is one of the most flexible ways you can distribute goods and services. A franchisor can give you the needed training and support for starting a restaurant franchise business. Partnering with a fun and successful brand, such as Twin Peaks, which is a unique sports bar and restaurant, is a smart move.

What should a business plan include?

Your plan should include details, such as estimated investment expenses, besides projected returns. Most importantly, be sure your business plan is well written because this can make a difference in whether a lending company approves your loan.

What are the skills needed to be a successful business owner?

Are you able to comfortably interact with both employees and customers? Besides being energetic, you also need to pay close attention to details and be exceptionally disciplined.

Is it easy to start a franchise business?

The Bottom Line. The process of starting a franchise business isn’t cheap or easy, so it’s important to partner with a reputable parent company. There are several requirements you must satisfy before starting your business. Franchising is one of the most flexible ways you can distribute goods and services.

What is franchise agreement?

The franchise agreement should clearly set out details of the parties, business system, brand and use of the brand, along with other key terms and features. The franchisee’s obligations clause will be substantial and typically includes initial and ongoing training, staffing, financing and accounts, payment of fees, minimum performance, attendance to business, use of and compliance with the business system and insurance.

What should a franchisee be clear about?

Most importantly, the franchisee should be clear about the terms on which they are taking up the franchise and go into the relationship with their eyes open.

What is franchising important to?

Often, franchisors will protect their brand - logo or trading name - via a registered trademark and it’s an important part of the due diligence process to check this.

What is a prospectus for a franchise?

The prospectus contains a general overview of the franchise operation and may also contain financial information of pilot franchises or trading franchises and possibly financial projections.

Can you view a franchise manual?

Manuals may be hard copy or electronic and sometimes accessible via a franchisor’s computer system or web portal. Franchisors may allow prospective franchisees to view the manual under appropriate conditions of confidentiality before signing the franchise agreement, but would not normally allow long-term access or copies to be made.

Is a franchise agreement nonnegotiable?

This document should be uniform for all franchisees in a franchisor’s network. Often, franchisors will say their franchise agreement is nonnegotiable. This is so they are treating all franchisees fairly and on similar terms.

Do franchisors need to provide bank information?

Although not required in any particular form, franchisor s often have a bank of information relating to their business and the franchise offering. It is likely this information will only be provided after a prospective franchisee has signed the confidentiality or intent to proceed agreement.

What is a franchise agreement?

The franchise agreement is the binding contract between you and your franchisee. It explains all rights and obligations for both parties and protects the integrity of your franchise system and your trademarks. This is one of the first documents you will send to a prospective franchisee.

What are restrictions in franchises?

Restrictions. Lists any restrictions on sources of products or services and the suppliers that must be used to maintain the integrity of the franchise system.

What is franchising regulated by?

Franchising is regulated by the Federal Trade Commission and by state laws . As a franchisor, you are required to provide accurate, detailed disclosures to prospective franchisees so they can make informed decisions about your franchise offer.

What are the issues that are addressed in a franchise agreement?

Issues typically addressed in a franchise agreement include: Initial and ongoing franchise fees. Timelines for opening the franchise for business. Franchise territory protections (if applicable) Specifications for equipment, supplies, and inventory. The term of the agreement and conditions for its renewal.

How many categories are there in the FDD?

The FDD discloses extensive information about you and your business, divided into a cover page, table of contents, and 23 categories, including:

Can you sell a franchise without a FDD?

By law, you can’t sell a franchise until you’ve given the prospective franchisee an FDD. In fact, 15 states require franchisors to register their FDDs with the state or to notify them that they will offer franchises before they begin to conduct any franchising activity in the state.