Here are the basic steps to establish your Franchise business. Before you start, however, be certain that you have enough experience building your system, so that potential franchise investors see the value in the company and its branding.
Formation of a Legal Entity
Form a legal entity such as a corporation or limited liability company in your state, or in a state with significant tax advantages (please discuss the last option with your accountant).
Draft a Franchise Agreement
There are essential franchise documents, collectively known as the Franchise Disclosure Document (FDD). First, draft a Franchise Agreement and take the time to develop understandable language that is comprehensive, and details the obligations of the franchisee as well as your obligations as the franchisor. This is a complicated and lengthy document and one that you should have a franchise attorney draft.
Once the Agreement is completed, prepare the Franchise Disclosure Document (or *Circular* depending upon the state where offered). This document is similar to a prospectus. The purpose of this document is to provide the prospective franchisee with essential information about you, your partners or shareholders, and your franchise business. This document must meet exacting requirements in order to pass muster with the registration state examiners and the FTC.
Registration/ Business Opportunity States
There are several states/commonwealths that require you to submit and have approved the FDD before you are permitted to sell franchises. Some of these jurisdiction require only that you file the FDD beforehand. Other states require Business Opportunity filings. Therefore, do not assume that you may sell your franchise in any state simply because the FDD is FTC compliant. As a new franchise organization, be prepared for the registration states to require that you escrow or defer your franchise fee until your initial start-up obligations to the franchisee are satisfied.
Keep in mind that the registration states will require annual filings, as well as the re-filing of the FDD showing any materially revisions from the previously approved FDD.
Protect your brand through trademarking. Apply for a trademark early-on in the franchise building process.
Additional resources provided by the author
Please review the helpful material on these franchise-specific links:
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