Franchise Legal Documents: Advantages for Franchisees and Franchisors

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Franchise corporations must create and submit disclosure documents and financial statements about their franchise opportunity. These documents must be provided to potential franchisees at least 10 days before a sale occurs. In addition, 14 states also require franchisors to submit similar legal documents, according to the Consortium for Entrepreneurship Education. These documents provide avenues for both the franchisor corporation and the potential franchisee to make sure the relationship is a good fit for both companies.

Strengthens Franchise Concept

As a franchise corporation, putting everything in writing as part of the requirements for selling a franchise helps you build a stronger concept. In order to sell franchises, you must complete the voluminous Franchise Disclosure Statement required by the Federal Trade Commission. This document explains all of the details of your idea, including how you plan to provide training, handle operations and promote the concept as part of helping the franchises make money. As a franchise corporation, filling out this paperwork helps you look for holes in your plan and streamline work processes to make things easier for potential buyers.


Taking a look at the Franchise Disclosure Statements helps franchisees evaluate the opportunity the franchisor offers. The thoroughness and quality of the policies and procedures included in the document helps potential buyers feel confident the franchisor knows what they’re doing. It outlines the total franchise cost so buyers know what fees they must pay, including the franchising fee, inventory, equipment and any remodeling or new construction costs the franchise requires. In addition, the documents outlines the royalty fees required, typically based on a percentage of the weekly or monthly income.


Potential franchisees often ask how the parent company determines territorial rights. The Franchise Disclosure Statement outlines how territories are set, including whether they are offered as exclusive or non-exclusive. It also explains whether a franchisee is allowed to open just one or multiple units of the franchise, important information for franchisees who feel confident the franchise will be popular enough to open more stores and eager to stop competitors from gaining those territories.


From a franchisor’s point of view, providing training on how each staff member helps operate keys the franchise's success and ensures a profitable entity. For the franchisee, the provided pre-opening and ongoing training helps start up and manage the business, particularly important if you have little business background or minimal experience in the type of business the franchisor offers.


About the Author

Nancy Wagner is a marketing strategist and speaker who started writing in 1998. She writes business plans for startups and established companies and teaches marketing and promotional tactics at local workshops. Wagner's business and marketing articles have appeared in "Home Business Journal," "Nation’s Business," "Emerging Business" and "The Mortgage Press," among others. She holds a B.S. from Eastern Illinois University.

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