Franchise Regulations

The regulations that govern franchising at the national and regional levels are referred to as franchise regulations. These regulations vary from nation to nation.

Some nations, such as the United States, have well-developed franchise regulations. In others like India, government regulation of franchising is still in its early days. In various nations, there is a self-regulatory aspect to franchising, with franchisors taking the initiative to formulate and follow specific standards. In these contexts, the franchisors are not necessarily subject to any penalties should they fail to comply with these standards.

If you are looking to become a franchisor, you should find out which regulations govern franchising in your location. Remember that, if there are franchise regulations, they are likely to exist at both the national and regional levels. Violating these regulations will earn you penalties, a terrible risk to take when your credibility is essential to successfully marketing your franchise to prospective franchisees. Hence you must make the effort to find out what the regulations pertaining to your business are and to comply with them. You could do this the hard way: this entails doing all the research and completing all the forms. You could also do it the easy way: by hiring a franchise lawyer.

 

Why Do Franchise Regulations Exist?

 

Franchise regulations primarily exist to protect franchisees. If franchisors were allowed free rein, it is likely that some individuals would take advantage of the opportunity to commit fraud. They might franchise a business that they were aware had no capacity to succeed, and sell unsuspecting men and women the franchise. It would probably be too late for these men and women to seek redress by the time they realized that they were on a sinking ship.

Having regulations in place minimizes the likelihood of such an outcome. With regulations to contend with, franchisors have to disclose all the relevant information pertaining to their businesses before they enlist a single franchisee. This is typically information about the franchisors’ and businesses’ financial histories. Such information would make it possible to determine the legitimacy of the franchisors and their businesses.

Examples of this kind of information include previous earnings and projected earnings, along with documentation supporting those details. Information about trademarks associated with the business should be made available, as should any aliases by which the franchisor has gone. The franchisor’s prior entanglements in fraud, if any, should be indicated.

Note that franchise law sometimes overlaps with other areas of law, including commercial law and intellectual property law. This can make things complicated for the franchisor. As a prospective franchisor, you should make a point of consulting a franchise lawyer to deal with all such legal matters.