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For the franchisor, use of a franchise system is an alternative business growth strategy, compared to expansion through corporate owned outlets or "chain stores". Adopting a franchise system business growth strategy for the sale and distribution of goods and services minimizes the franchisor's capital investment and liability risk.
Franchising, a business method that involves licensing of trademarks and methods of doing business to franchisees; Franchise, a privilege to operate a type of business such as a cable television provider, public utility, or taxicab company, sometimes requiring the filing of tariff schedules, as in:
A franchise agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level.. Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule. [1]
The commission focuses much of its franchise rule enforcement and consumer educational resources on combating business opportunity fraud. The franchise rule requires franchisors to make material disclosures in five categories: the nature of the franchisor and the franchise system; the franchisor's financial viability
The Franchise Rule specifies what information a franchisor must disclose to a prospective franchise business as a franchise opportunity. [7] [8] Franchisors that practice franchise fraud will attempt to pressure a franchisee leaving the franchise system sign a non-disclosure agreement, confidentiality agreement, or a gag order. The gag order ...
Investing in a financially unstable franchisor is a significant risk; the company may go out of business or into bankruptcy after a franchisee has invested its money. A lawyer or an accountant can review the franchisor’s financial statements, audit report, and notes. They can help a franchisee understand whether the franchisor: has steady growth
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