Franchising and Distribution
Under the FTC rule and the individual regulations of more than a dozen states, you can't afford to leave your franchising to inexperienced counsel.
We have experience representing:
- New and established franchisors
- Master franchisees
- Area developers in a variety of industries, including restaurants, education, food & beverage, health, home improvement, services, and more.
You can rely on us to help structure franchise systems, negotiate and draft franchise agreements and related contracts, federal and state regulatory compliance, and other matters to keep you focused on building your franchise business.
What is franchising exactly?
Franchising is a business method that is defined by three characteristics: a franchisor grants to a franchisee the right to (1) use a trademark, (2) in connection with a certain business method controlled by the franchisor, (3) in exchange for a fee. Any business that meets the definition falls under the regulations of the FTC and some some states - regardless if the franchisor and franchisee want to or not - and must comply from the moment the parties begin negotiating.
The new FTC Rule
The FTC Rule, which has governed the offering of franchises for thirty years, had its first major revision in 2008. The complicated rules have been relaxed and updated, which require every franchise system to make significant changes to their documents and operations. The New FTC Rule requires that franchisors deliver to prospective franchisees a detailed offering circular document called the "Franchise Disclosure Document" or "FDD" for short. This document replaces the document that had been accepted previously called the Uniform Franchise Offering Circular, or UFOC. While the new FDD is very similar to the old UFOC, there are some major differences that affect how a franchisee receives its information. One welcome change is that now franchisors can deliver FDDs to prospective franchisees via electronic means (such as email or through the Internet), which is today's society is practically required.
The Franchise Disclosure Document (FDD)
Under the federal regulations, franchisors must present a detailed document to prospective franchisees which gives information about the franchisor, its history, and the franchise itself. Specifically, the FDD requires a description in plain English (not legalese) of (1) the franchisor, its predecessors, and any affiliates, (2) the business experience of the franchisor, (3) any litigation involving the franchisor, (4) any bankruptcies involving the franchisor or certain principals, (5) the initial fees required of franchisees, (6) any other required fees, (7) an estimate of the total initial investment, (8) restrictions on the sources of products and services, (9) the franchisee's obligations in running the franchise, (10) any financing of the franchise fees, (11) the franchisor's assistance, advertising, computer systems, and training, (12) the territory granted to the franchisee, (13) the trademarks used in the franchise, (14) any patents, copyrights, and proprietary information used in the franchise, (15) obligations of the franchisee to participate in the actual operation of the franchise, (16) restrictions on what the franchisee may sell, (17) rights on renewal, termination, transfer, and dispute resolution, (18) any public figures used in advertising and marketing, (19) any representations on financial performance, (20) the number of open outlets and information on other franchisees, (21) financial statements of the franchisor, (22) any contracts used in the franchise relationship, and (23) a receipt of the FDD's delivery.