The relationship you develop with your franchise can be long and prosperous. You will depend on the franchise for its support and intangible characteristics such as brand recognition and quality products. Also, the franchise will depend on you to follow guidelines and present an upstanding image.
Long ago agreements were made by looking someone in the eye and presenting a hand-shake. Unfortunately, when it comes to franchises, it is not that simple. Federal and State laws require franchises to provide you with legal documents that specifically describe your relationship. These documents are the UFOC and the Franchise Agreement. In this article we will describe each document and their purpose.
Uniform Franchise Offering Circular (UFOC)
The purpose of the UFOC is to provide you with information about the franchise you plan to purchase. At a high-level it contains extensive information about a franchise, which is intended to give you enough information to make educated decisions about your investment. The UFOC includes the actual franchise agreement as well as other agreements you will be required to sign, along with the franchise''s financial statements. You will need to read over and sign these documents before you can legally buy the franchise.
By law, you cannot purchase a franchise until the franchise has presented the you with a Disclosure Document. In fact, 14 states require franchises to register their UFOCs with the state or to notify them that they will offer franchises before they begin to conduct and franchising activity in the state.
The UFOC included information about:
- The Franchise, its Predecessors and Affiliates
- Identity and Business Experience of Key Persons
- Litigation History
- Bankruptcy
- Initial Franchise Fee
- Other Fees and Expenses
- Your Initial Investment
- Restrictions on Sources of Products and Services
- Your Obligations
- Financing Arrangements
- Obligations of the Franchise
- Territory
- Trademarks
- Patents and Copyrights
- Your to Participate in the Actual Operation of the Franchise Business
- Your Restrictions on Goods and Services
- Renewal, Termination, Repurchase, Modification and/or Transfer of the Franchise Agreement
- Public Figures
- Earnings Claims
- List of Franchise Outlets
- Financial Statements
- Contracts
- Acknowledgment of Receipt
The franchise must present you with a UFOC at least 10 business days before any contract is signed and before any money changes hands. This allows you time to consult an attorney regarding the specifics of the document and to verify that this franchise meets your needs.
The Franchise Agreement
The franchise agreement is more specific than the UFOC about the terms of your relationship with the franchise. A typical franchise agreement may include specifics about:
- the franchise system, such as use of trademarks and products
- territory
- rights and obligations of the parties: standards, procedures, training, assistance, advertising, etc.
- term (duration) of the franchise
- the payments you are required to make to the franchise
- termination and/or the right to transfer the franchise
The franchise agreement is the legal, written document that governs the relationship and specifies the terms of the franchise purchase. Like the UFOC, you are legally entitled to have the final franchise agreement for at least 5 business days before you are allowed to sign. This gives you time to review and consider the terms of the agreement.
The purchase of a franchise is a large decision. It is always recommended that you research the franchise extensively and consult an attorney when you feel you are ready to purchase.
Good Luck
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