Franchising provides an excellent opportunity for business growth for franchisors. Also, it lets entrepreneurs start new ventures as franchisees with a proven blueprint. However, franchisors must share certain details with potential franchisees before a sale as per Indiana law.
This disclosure act promotes transparency and ensures franchisors are on the right side of the law.
Details about the franchise
Franchisors should provide a Franchise Disclosure Document (FDD) to potential franchisees at least 10 days before signing a deal. This document contains essential information about the franchisor and the franchise agreement. Key disclosures include:
- Franchisor identity: Legal and business names and any related companies
- Contact information: Main business address and the contact details of their Indiana agent
- Business structure and registration: Legal structure and registration place
- Business experience: How long they’ve run a similar business and franchising experience
- Franchise fee structure: Explanation of the fee structure, its amount, use and calculation if it varies
- Additional payments: Extra payments beyond franchise fees
- Franchise agreement conditions: Terms for ending, renewing or repurchasing the agreement
- Required purchases: Whether franchisees must buy certain items from franchisors or affiliates
- Restrictions: Limits on customer offerings as per the franchisor
- Financing agreements: Financing deal terms and conditions
- Financial statements: Data of financial information about potential earnings
- Exclusive territory: Whether franchisees can operate in a specific area
Sharing this information helps build a good relationship with potential franchisees right from the get-go. Plus, it gives franchisees the details they need to decide whether to proceed with the business.
Essential insight into a franchise
The FDD serves more than just a legal requirement. It provides franchisees with essential insights for their franchising journey. With these insights, franchisors and franchisees start on the right foot, creating a successful and enduring business partnership. Franchisors with a vested interest in expanding should consult a business law attorney. Doing so ensures that they stay compliant to avoid potential legal pitfalls.
