Get Out of Your Franchise Agreement

When a franchisor misrepresents itself to its franchisees, our franchising experts explain how they can get out of it.
3 min read
Opinions expressed by Entrepreneur contributors are their own.

Q: We purchased a franchise only to discover a few weeks later that the franchisor had not mentioned some significant hidden costs as well as problems at the franchisor's headquarters related to lawsuits, locations closing and staff layoffs. It also turns out that the franchise was not registered to offer franchises in our state. Does the lack of state registration give us a loophole to demand our money back?

A: If a franchisor is required to register in a particular state, a lack of proper registration might give you some significant leverage in getting your money back. But the state in which the franchise has its offices is not a registration state and neither is the state in which you bought the opportunity. Therefore, a lack of registration isn't really an issue.

Upon closer look, we discovered that there were indeed some significant problems with the company. Many of the locations the company said were open were not. The company had also not mentioned several pieces of litigation, some of which were significant. Some of the people you had met were really not employees of the company, although the salesman had introduced them to you as employees. The equipment and inventory you needed to buy to open the business was very expensive, and you couldn't obtain any of the equipment used, as you'd been led to believe. There were also some problems in getting the type of retail space you needed.

Unless it was intentional, it would be hard to understand how the franchisor had made so many errors in their disclosure. As it turns out, the company you paid money to was not a franchisor after all. The owners of the company said they didn't even know the requirements for being a franchisor. They thought that since their state didn't require any franchise registration, they could just call themselves a franchise because it sounded good. You happened to be this company's very first "franchisee."

Had you read any articles or books on buying a franchise, you probably would have understood that a franchisor is required to provide pre-sale information in the form of a disclosure document. You would also have known to hire a qualified franchise lawyer to help you understand your rights under the franchise agreement and maybe even an accountant to help you understand the investment and some of the business risks. Unfortunately, you didn't take any of these crucial steps.

While you could go directly to the state regulators or attorney general's offices, it's really time for you to hire some professional legal help. The money you saved by not hiring an attorney to help determine whether your investment was a safe one will now be spent to see if there is anything left of your investment at all.

Michael H. Seid is managing director of Michael H. Seid & Associates, a West Hartford, Connecticut- and Troy, Michigan-based management consulting firm specializing in the franchise industry. Seid co-wrote Franchising for Dummies (IDG Books) with Dave Thomas, the late founder of Wendy's, and serves on the International Franchise Association's Board of Directors.

The opinions expressed in this column are those of the author, not of All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

More from Entrepreneur

Grow Your Business at Entrepreneur LIVE! Join us on Nov. 16 in Brooklyn, NY, to learn from legends like Danica Patrick and Maria Sharapova, pitch our editors, meet with investors, and potentially walk away with funding!
Register here

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.