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Franchise Buying Guide

Franchise Basics

Franchise Law
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

An important protection for the person planning to buy a franchise is the FTC's Franchise Rule, put into effect October 21, 1979. The rule requires covered franchisors to supply a full disclosure of the information a prospective franchisee needs in order to make a rational decision about whether or not to invest. This disclosure must take place at the first personal contact where the subject of buying a franchise is discussed and at least 10 business days prior to signing any contract with the franchisee or accepting any money. This is a "cooling-off' period intended to prevent franchisees from jumping in without carefully reviewing and considering what they're doing.

This means a franchisor, franchise broker or anyone else representing franchises for sale has to present a disclosure document-the Franchise Disclosure Document (FDD)-containing extensive information about the franchise. Furthermore, you must be provided with completed contracts covering all material points at least five days prior to the actual date of execution of the documents. Again, this provides another cooling-off period and the chance to have an attorney review the contracts prior to execution.

Visit the FTC's Franchise and Business website to find out more about the Franchise Rule.

State Laws

The FTC doesn't require franchisors or business opportunity sellers to register with it or any other government agency. However, several states do have registration rules requiring franchise sellers to register. Some of these states laws are tougher than others, but most have adopted the FDD guidelines for their disclosure requirements.

It would be a mistake, however, to assume that simply because a franchise is registered with a state or provides some type of full disclosure document, you as a consumer are going to be protected from the possibility of failure or rip-off. The only thing that a state reviewing agency can do is ensure that the franchisor has responded and filed the necessary documents.

Franchise Registration States

These 15 states require a franchisor to register its UFOC and maintain a registration with the state agency indicated. If the company is authorized to sell franchises in one of these states, the company will be registered with the agencies listed here. Two of these 15 states do not require a filing of offering circulars, as noted below.
StateAgencyTelephone Number
CaliforniaDepartment of Corporations(916) 445-7205
HawaiiDepartment of Commerce, Franchise & Securities Division(808) 586-2722
IllinoisAttorney General's Office, Franchise Division(217) 782-4465
IndianaSecretary of State Office, Franchise Division(317) 232-6681
MarylandAttorney General's Office, Securities Division(410) 576-6360

Michigan (notice req'd)

Attorney General's Office, Consumer Protection Division, Franchise Section(517) 373-7117
MinnesotaMinnesota Department of Commerce, Franchise Division(651) 296-6328
New YorkDepartment of Law, Franchise & Securities Division(212) 416-8211
North DakotaOffice of the Securities Commissioner, Franchise Division

(701) 328-2910

Oregon (filing not req'd)

Rhode Island

Division of Securities, Dept. of Insurance and Finance

Division of Securities, Franchise Office

(503) 378-4387

(401) 222-3048

South DakotaDivision of Securities, Franchise Office(605) 773-4013
VirginiaState Corporation Commission, Franchise Office(804) 371-9276
WashingtonDepartment of Financial Institutions, Securities Division(360) 902-8760
WisconsinWisconsin Securities Commission, Franchise Office(608) 266-3364

Source: The Small Business Encyclopedia, Start Your Own Business, Entrepreneur magazine and Entrepreneur's StartUps magazine.


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