You’ve just discovered a great franchising opportunity and decided to buy into a franchise. Before going through the process, and signing that franchise agreement, it’s important to understand what you’re getting yourself into. Misunderstandings can lead to an unsuccessful business venture and the feeling of being taken advantage of or deceived. In this blog, we’ll go over what you can expect when presented, or seeking, a franchising opportunity.
Prior to selling or offering a franchise in Nevada, franchisors will need to properly prepare and provide prospective franchisees a Franchise Disclosure Document (FDD). There are no franchise specific laws in Nevada, it is not a franchise registration state, and does not require state specific registrations or filings. However, an FDD must still be provided by the franchisor and this document must contain mandated items required under the Federal Franchise Rule. The Federal Franchise Rule can be found here. The FDD must contain information about the franchising offer with regard to:
- The Franchisor and Any Parents, Predecessors, and Affiliates
- Business Experience
- Litigation
- Bankruptcy
- Initial Fees
- Other Fees
- Estimated Initial Investment
- Restrictions on Sources of Products and Services
- Franchisee’s Obligations
- Financing
- Franchisor’s Assistance, Advertising, Computer Systems, and Training
- Territory
- Trademarks
- Patents, Copyrights, and Proprietary Information
- Obligation to Participate in the Actual Operation of the Franchisee Business
- Restrictions on What the Franchisee May Sell
- Renewal, Termination, Transfer, and Dispute Resolution
- Public Figures
- Financial Performance Representations
- Outlets and Franchisee Information
- Financial Statements
- Contracts
- Receipts
Because the costs for violating franchise laws can be substantial, it is important for franchisors to comply with these laws. Franchisors in Nevada only need to comply with the requirements of the FTC Rule and these items must be included in the FDD. Having the FDD reviewed by an experienced contract attorney can give you the peace of mind you need before entering a franchise agreement. They will be able to determine if the FDD is reasonable and even-handed, while making sure the terms are as transparent as possible.
