Part 1 of this blog series addressed business issues to consider in deciding whether to franchise your business and preparations to be made before launching a franchise program. Part 2 of this blog series addressed preparation of the legal documents required under federal and state franchise law - the Franchise Agreement and the Franchise Disclosure Document ("FDD"). Part 3 of this blog series addressed state registration of franchises. This blog addresses compliance with franchise laws as a new franchisor begins offering and selling franchises. In addition to franchise disclosure and registration requirements, the federal and state franchise laws cover actions that must be taken when offering and selling franchises and actions that are prohibited in the offer and sale of franchises.
You may be considering franchising your business for a number of reasons. You may want to expand your business but don't have the capital to open numerous additional locations on your own. You may have people approaching you about buying a franchise because they love your business concept. You may like the idea of the brand and business you have built opening up in locations all over the country. However you come to the point of considering franchising, there are some initial steps to take before you launch into establishing a franchise program.
Franchisors should not mistakenly assume that a sale of an existing franchise business by the franchise owner is not subject to the registration and disclosure requirements of the franchise laws. When a franchisee is selling its franchise business, is the franchisor obligated to provide the prospective buyer with its current Franchise Disclosure Document? If the franchise business is in a franchise registration state, does the franchisor have to be registered to offer and sell franchises in that state for the franchisee sale/transfer to take place?