6 Legal Documents You Need To Consider
- Prospectus This is often the first document a prospective franchisee will come across. ...
- Confidentiality agreement or intent to proceed/ deposit agreement A prospective franchisee may be asked to sign one or both of these documents in order to proceed with their enquiry. ...
- Information memorandum /disclosure document ...
- Franchise agreement ...
- Trademark licence ...
- Operations manual ...
What documents do I need to open 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 do you need to know about a franchise agreement?
Franchise Disclosure Document Before you can offer or sell a franchise you are required to issue and disclose a franchise disclosure document (FDD) to the individuals that you are offering your franchise to and who may eventually sign a franchise agreement and become your franchisee.
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 is the first document needed to franchise a business?
What is required in a franchise document?
What is a franchise agreement?
How long do you have to sign a franchise agreement before you can sign it?
Do franchises have to create legal documents?
Do you need a legal document for a franchise?
See 1 more
What documents are needed to open a franchise?
The primary franchising documents needed to create a franchise relationship and franchise your business include: Franchise disclosure document. Franchise agreement....Franchise Disclosure Document. ... Franchise Agreement. ... Operations Manual. ... Franchise Registration Applications and Notices. ... Financial Statements.
What 3 things are typically included in a 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...
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.
Do I need to register as a franchise?
The Federal Trade Commission (FTC) does not require any type of registration for anyone buying a franchise or the franchisor. The only requirements are around how the buying process takes place. The franchisor must present you, the franchise buyer, with a franchise disclosure document (FDD).
What is initial franchise fee?
Referring to an “initial franchise fee” is a bit more on-point; the initial franchise fee is a one-time, upfront amount that a prospective franchisee pays to the franchisor for the rights to acquire a franchise, develop the location and join the franchise system.
What are the legal obligations of a franchise?
Your Ongoing Obligations To act in good faith. To comply with the franchise business model as per the contract documentation. To meet your financial obligations. To run your business lawfully.
What is the most common type of franchise agreement?
single unit franchiseA single unit franchise is an agreement where the franchisor grants a franchisee the right to open and operate one franchise location. This is the most common and simple type of franchise relationship.
What are the two most important forms of franchising?
The two most common forms of franchising are product distribution and business format. In product distribution franchises, franchisees sell or distribute the franchisor's products through a supplier-dealer relationship.
When investing in a franchise What are 5 important things to consider?
But if you're serious about investing in a franchise, there are a few more important things to consider.Understand the business. ... Consider all the costs. ... Size up your commitment. ... Get familiar with a franchise's framework. ... Be realistic about your expected return on investment.
How do you get a franchise license?
The following are the steps to franchise your business:Determine if franchising is right for your business.Issue your franchise disclosure document.Prepare your operations manual.Register your trademarks.Establish your franchise company.Register and file your FDD.Create your franchise sales strategy and budget.
How do I register as a franchise?
Contact your state's secretary of state. This official for the state where you're registering the franchise handles the paperwork for registering the business name, business location and owner information. Obtain the registration application for the business entity you're registering.
What does a franchise owner have to do?
As a franchisee, a business owner is responsible for the following: Paying the franchise fee and paying royalties to the franchise to help run the larger business. Finding, leasing and building out a location for the franchise. (As mentioned previously, most franchises will help extensively with this.)
What must be included in a franchise agreement?
A franchise agreement will usually contain the franchisee's obligations relating to performance criteria, payment of fees (royalties, marketing fees, training fees, transfer fees, termination fees, utility levies etc.), marketing, reporting, training, supply of products and services, territory etc.
What is included in a franchise contract?
The franchise agreement outlines the costs of franchising ownership. All franchises charge fees. These include the initial franchise fee, as well as ongoing fees such as the monthly royalty fee, advertising or marketing fee, and any other fee. Agreements can include late fees and interest.
What are the contents of franchising agreement?
The agreement specifies the relationship between the franchisee and the franchisor, including both parties' benefits and the restrictions. The agreement ensures that the franchisor, as the business owner, has better control over the business's operations.
What are the main ingredients of a franchise agreement?
For those who wonder what all this agreement states, here are the essential elements of a franchise agreement.Franchisor-Franchisee Relationship. ... Duration of the Agreement. ... Franchise Fee. ... Business Operations. ... Site Selection and Development. ... Training and Support. ... Use of Intellectual Property.
5 Franchise Documents Every Franchisee Must Receive - LegalVision
3. Key Fact Sheet. The key fact sheet is a short document that was introduced by amendments to the Code in July 2021. Indeed, t he Code prescribes the form a franchisor must use and complete. I t is a high-level ‘snapshot’ summary of the disclosure document. Additionally, its i nte ntion is not to be a comprehensive summary or a substitute for perusing the contents of the disclosure document.
The 8 Rules Franchisees Must Follow
In franchising it’s all about the rules. That’s how the business model was setup. And because of that, it works.
Documents Needed to Start a Franchise
There are various documents needed to start a franchise, which are prescribed by the Federal Trade Commission in its Amended Franchise Rule (the “FTC Rule”) found at 16 CFR 436.
Business Franchising: Requirements and Paperwork | The Hartford
Franchising can be a great way to grow your business, but businesses will need to go through certain steps before it's an option. Franchising is regulated by the Federal Trade Commission and by state laws. Learn more in The Hartford Business Owner's Playbook.
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 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 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 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 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.
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 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.
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.
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 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 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 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.
The Franchising Industry Is a Pillar of the US Economy
A franchise is a type of joint venture in which the business owner (the franchisor) grants the right to an individual or group of individuals (the franchisee (s)) to do business under the franchisor's name and system.
Legal Documents Needed to Start a Franchise
Franchising is a contractual relationship between the franchisor and the franchisee. Franchisors are responsible for providing prospective franchisees with legal documents that comply with federal and state franchising requirements. The two primary legal documents are the franchise agreement and the franchise disclosure document (FDD).
Franchise Agreement
This document is a binding agreement between the franchisor and franchisee. It details the business relationship between the two parties and explains the rights and obligations of each. Franchise agreements vary depending on the franchise but should address the following areas:
We Can Help
Investing in a franchise can be a great business opportunity. But before you sign a franchise agreement and invest any money, you should closely review all documents with help from a qualified business lawyer. Give us a call today to set up a meeting so we can help you successfully form and operate your new franchise business.
What is the best way to cover startup costs?
Because these loans are guaranteed by the government, they have low-interest rates. Unfortunately, new businesses may find it difficult to get approved for funding. However, if the SBA has previously approved loans to the franchise under consideration, the review process may be streamlined.
Is it easy to start a franchise?
Starting a franchise is no easy feat, though many of the risks of starting a small business are eliminated by choosing the franchise route. Following the seven steps above will help potential franchisees stay on track in their path to entrepreneurship at the realization of the American Dream.
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 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 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.