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BUYING INTO A FRANCHISE

Steven E. Springer Aug. 11, 2016

When you are beginning a business, many different decisions must be made. Perhaps the first of which is what business structure you would like to pursue. Would you like to be a sole proprietorship or a partnership? Maybe you would like to have a larger business? Would you start from scratch or have everything done for you, like in a franchise? Business formation requires a significant amount of consideration, planning, and law checking before initializing.

ADVANTAGES TO OWNING A FRANCHISE

Franchises have many benefits to offer a new business owner. A franchise is a series of individually owned locations that are exactly alike at every location, creating the image of one larger business. With this trade option, you buy into an existing company, typically with the use of significant collateral and a superb credit score. The primary incentive for choosing a franchise operation as a new business owner is the security of never being truly alone, noting they go into business for themselves, but not by themselves. In return for the new owner providing the building and managing the operation, the existing business will:

  • Provide an established product or service,

  • Give the right to use of logos and other marketing,

  • Already have brand recognition and a solid customer base,

  • Provide training materials,

  • Train you on a proven business system, and

  • Provide you with established prices.

LEGAL ISSUES TO CONSIDER

Unlike having a sole proprietorship where there are no contracts, becoming a franchise owner is a binding contract between a business owner and the company for years, some as long as 20 years or more. Governed by both state and federal laws and strict legal documents, two of the most important which are:

  • The Franchise Disclosure Document (FDD): A report outlining the previous and current financial status of the existing company.  According to the Franchise Rule passed by the Federal Trade Commission (FTC), the franchisor must give the person who wishes to open a location (franchisee) this disclosure document at least two weeks before being asked to sign any official documents or paying any money.

  • The Franchise Agreement: The Franchise Agreement is the legal document that specifically outlines the arrangement between the new owner and the existing company.

Starting any new endeavor with a solid foundation is important. When starting a business, that groundwork should include covering all of the legal spectrum, which is much easier if you have the assistance of experienced legal counsel. If you are interested in discussing your plans with a seasoned and accomplished San Jose, CA business formation attorney, contact The Law Offices of Steven E. Springer today. With three convenient locations in Morgan Hill, San Jose and Fremont, a free initial 20-minute consultation, and more than 30 years of combined experience, we are prepared to assist you in your business legal needs. Call us today at 408-779-4700 or 510-791-7137.

Sources:

http://www.franchise.org/what-are-the-advantages-and-disadvantages-of-owning-a-franchise

http://www.franchise.org/what-are-the-legal-issues-of-franchising