Franchise Sales… Are you in compliance?

Face it, every franchisor wants to sell franchises, but are they following all of the rules when doing so? The Federal Trade Commission and various states have laws that relate to the sale of franchise opportunities.  Although the FTC does not require registration of the FDD or franchise sellers, in registration states a franchisor must give a list of the franchise sellers along with their contact information.  Each franchise seller then must comply with those state and federal laws governing the franchise sales process.  Failure to abide by these rules can result in severe punishment by the states and the FTC.  Some punishments have included fees paid to the state, requiring the franchisor to rescind the franchise agreement with the franchisee and repay all amounts paid, damages paid to franchisees, attorneys’ fees, court costs, and even criminal sanctions against the franchise seller or franchisor who breaks the laws.  Any franchisor can attest that an FTC or state violation can be detrimental, if not fatal, to any franchise system. The laws pertaining to franchise sales compliance are not difficult to learn and follow.  Newer franchisors should talk with experienced franchise professionals about franchise sales compliance and even ask for training and role playing to review various scenarios that could occur.  Additionally, all franchisors should work closely with their franchise attorneys to update the franchise disclosure document quarterly or as necessary to make sure that all aspects of state and federal laws are complied with.  Franchisors should also ensure that they are receiving signed FDD receipts from all franchisee prospects before moving forward with serious discussions, make sure that their franchise sellers are not violating the mandated waiting period that every franchisee prospect must be given, and that they provide prospective franchisees with any material changes that are made to the FDD and if necessary give additional waiting periods.  Being aware of the laws that pertain to franchise sales is a necessary evil in this industry, you should work with your franchise attorney to properly educate your franchise sellers which will help to make your franchise all the more successful. To learn more about franchise sales compliance, you can contact our attorneys at franchising@SheltonPower.com or call us toll free at 866-993-7262. If you are in the Austin, TX area and would like to learn more about franchise sales compliance, our firm will be hosting a lunch and learn session with the Austin Franchise Association on October 8 where we will have panelists who will host round table discussions and provide a panel discussion on franchise sales compliance.  For more information about attending this event, email me at Jason@SheltonPower.com.