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What franchisors need to disclose before selling a franchise

On Behalf of | Dec 26, 2023 | Business Law

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.

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