Business

Legal Requirements to Franchise a Business

What is Franchising?

Franchising is a growth opportunity for business owners which is availed by selling the rights to open another branch or unit of their business, following the same business model and structure, to another party. In a franchise arrangement, the buyer pays the business-owner a percentage of the sales after opening a replica of the franchise business under the direction of the franchisor. This benefits the franchisee by operating a well-established brand name with a fixed business structure while the franchisor benefits from the sales and expansion of his brand.

How to determine if your business can be franchised?

Franchising is a relatively flexible option for you to opt for if your business is thriving and looking forward to attain new heights. If your business fulfills the following criteria, you are good to go!

  • Has a well-established reputation
  • Follows a fixed pattern of functions that can be taught
  • Reflects a unique business opportunity for others
  • Generates good returns
  • Can survive in other locations/areas

How to get started as a franchise?

Once you have a successful business model that is fit for franchising, the first step is to ensure that the intellectual property rights are secure. The ideal way to go about that is with a federally registered trademark which complies with the legislative rules and regulations of the area you belong to. Registering your name and logo will prevent it from being duplicated and also avoid somebody else to build a business on your goodwill.

Your trademark will eventually help you to build your reputation and will be the cornerstone of your franchise system. Anyone who buys your franchise will eventually take up your name, logo, etc.

What are the documents required?

The documents required may vary from country to country but in general you will be required to arrange for a franchise attorney to draft your FDDs (Franchise Disclosure Documents) and your Franchise agreement. Please check with the specific franchising laws and tax-related regulations of the country where you wish to franchise. It is better to seek professional assistance in order not to overlook any details before franchising a business.

What is a franchise agreement?

A franchise agreement is the document which is signed by the franchisor and the franchisee stating the obligations on both parties and also includes a training, mentoring and technical advice component for the franchisee. A franchise agreement is a specialized document which will cover all aspects of the intellectual property (logo, name etc.), user obligations and use provisions.

Certain state laws will supersede provisions of the Franchise Agreement, regardless of not being stated or agreed by any one of the parties.

 

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