Franchising Law
When a Franchisor licenses trademarks tried and proven methods of conducting business to a franchisee in exchange for a residual payment, the process is Franchising. The payment is usually in the form of a part/percentage of the gross sales/profit and the annual fees.
Advertising, training and other support services are provided to the franchisee by the franchisor. The franchisor may require these services like audited books and may subject the franchisee to surprise inspections. Failure of such tests may result in cancellation of franchise rights.
Franchising lies under the jurisdiction of a number of federal and state laws in the USA. The Franchisors are required to have a Uniform Franchise Offering Circular or UFOC by the Federal Trade Commission, to disclose potential franchisees about their purchase. This must take place ten business days before the franchisor agrees to offer the prospective franchisee a license. There are specific requirements in the UFOC of each state. This means that many franchisors have a unique UFOC for state or can include all state specific requirements into a single document.
Franchising requires no federal registration or any federal filing requirements for information. States are the primary collectors of data on the franchising companies, and enforce laws and regulations regarding their spread.
Franchisors have infixed mandatory arbitration clauses into their agreements with their franchisees due to expensive litigation.
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