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Buying into a Business Franchise

A franchise is an agreement in which one business buys the right to distribute another business's products or services. The business buying into the franchise wants the right to use that successful and proven business model. Many of the most successful, proven, and ubiquitous chains in retail and restaurants are franchise operations.

Three elements define a franchise company:

  • Use of a trademark or a trade name

  • Payment of fees or royalties

  • Significant assistance provided by the franchisor

For an extensive listing of franchising opportunities, check out Entrepreneur magazine’s Franchise 500 list.

As with many areas of business, franchising is chock-full of laws and regulations:

  • The uniform franchise offering circular: In states that don’t have their own specific franchising laws, the Federal Trade Commission (FTC) has established a comprehensive code of regulations that are often referred to as the franchise rule. As a part of the franchise rule, franchisors are required to provide prospective franchisees with a detailed disclosure statement, called the uniform franchise offering circular (UFOC).

  • The elements of a franchising agreement: Franchises depend on franchise agreements — contracts setting forth the rights and the obligations of the franchisor and the franchisee — to define the legal relationship among all involved parties.

    Be absolutely sure that you understand every part of your franchising agreement — and agree with its terms and conditions — before you sign it. The operating rules and procedures you are expected to follow in a franchise can be very regimented and strict. This can include everything from where you can locate your franchise, to hours of operation, to dress code, to management structure and how many employees you can hire, and much more.

Buying into a franchise that has a proven track record and ongoing training and support can translate into a quick startup phase and almost immediate cash flow. But you’re required to follow someone else’s system and procedures.

If you decide that franchising is something you would like to explore further, thoroughly research all the possible opportunities to find the one that is the best fit for you.

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