Buying a Franchise

By Michael D. Cross, Jr., J.D.

Over the past few years, corporate restructuring has caused a number of individuals to reconsider their careers and their desire to work for larger companies. As a result, many are looking for opportunities to start a business of their own. One way to accomplish this is to purchase a franchise.

Generally, the purchaser of a franchise merely purchases the right to do business using an already developed trade name, trademarks, and business model. The person selling the franchise is known as the franchisor. The purchaser is known as the franchisee. Ideally, the franchisor has developed a business model that is easy to follow and which accompanies a strong brand name.

Obviously, the purchaser of the franchise must take time to research the franchise and the franchisor to determine whether he or she is comfortable with the business. Under federal and state law, the franchisor is required to provide substantial information to the purchaser in a document known as the franchise offering circular. Though this document does contain a lot of information that is helpful, it does not necessarily contain all information the purchaser might want to know. Franchisors also may purposefully or inadvertently omit certain information from time to time, so it is important for the purchaser to examine the franchise offering circular carefully.

Once the purchaser has examined the information and determined he or she should purchase the franchise, the franchisor will require the purchaser to sign a franchise agreement. This agreement sets forth the obligations of the franchisor and the franchisee. Because of the complexity of the agreement and the information presented in the circular, most purchasers speak with their CPA and business attorney prior to signing the agreement.