When franchising your business, you are creating a system that allows others (called “franchisees”) to operate a business using your name, operating methods and standardized processes. In other words, the franchisee is buying the rights to operate a clone of your business. Although this allows you to have a great deal of control and uniformity in terms of operations and services provided, creating and maintaining the franchise system is not an easy process.
Franchises are highly regulated by the Federal Trade Commission (“FTC”) and state laws. For instance, the FTC delineates certain pre-sale disclosures and timing requirements (23 pre-sale disclosures at the time of writing this article), which necessitates extensive drafting and planning by the business, its accountant and lawyer. Likewise, while Florida is not a registration or pre-filing state, Florida prohibits certain misrepresentations and imposes additional regulations for specific industries (such as recreational and motor vehicle dealers, beer distributors, and agricultural equipment). A business considering the franchise route should also be wary of specific state laws such as those involving antitrust, deceptive and unfair trade practices, and non-compete laws. Needless to say, taking your business to the franchise level may be a strenuous and expensive process, but the rewards may be worth it.
Business owners may want to consider other options when seeking to expand their business or contemplate investors. Among those options are the creation of joint ventures, partnerships or the sale of membership interests. It is important, however, that you consult with an attorney when considering those options as your business relationship may end up being an “inadvertent franchise” and, thus, subject to FTC and state law requirements – failure to comply with these may subject the business and its owners to civil and criminal liability.
If you are considering franchising your business, buying into a franchise, or seeking to expand your business, do not hesitate to contact Apfelbaum Law for a consultation.