If you have a successful business that can be duplicated and you want to expand your geographic reach you will want to consider franchising. Generally, franchising is a method whereby the franchisor gives franchisees a license to use its brand, i.e. trademarks, and system for operating the business, in return for the payment of a fee. When thinking of franchise systems, most consumers think “burgers and fries.” For example, McDonalds, Burger King, Five Guys. However, franchising exists in many industries such as hotels, gyms and fitness centers, trampoline parks, entertainment centers, event planning and cruising. Regardless of the industry, a franchised business will seek to provide the customer the same experience at every location. With franchising, the franchisor has the opportunity to open additional locations or service additional territories while the franchisees incur the costs, both time and money, required to develop those locations or territories. This can be a win-win for the franchisor.
Before selling franchises, franchisors must comply with the Federal Trade Commission Rule on Franchising (“FTC Rule”). The FTC Rule requires that franchisors prepare and provide to prospective franchisees, a copy of their Franchise Disclosure Document (“FDD”). The FDD contains 23 items of information to assist prospective franchisees in evaluating the franchise offering. The FDD must include mandated information about the franchisor, the business to be operated and the franchisee’s initial investment as well as agreements that the franchisee may be required to sign. A number of states, including New York, require registration of the FDD with the state before the franchisor can offer franchises for sale.
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