Turning a successful company into a franchise can be an excellent way to earn income without all the commitment and work of traditional expansion. Although another business owner will handle the day-to-day operations of the individual company and will be largely responsible for that company’s success or failure, franchisors still have certain legal responsibilities to provide their prospective franchisees with an opportunity to fully review the franchise offering ahead of purchasing the franchise

These obligations include taking steps to register the franchise that you are offering with the State, drafting necessary franchise disclosure documents and contracts (including the franchise agreement), and proving the necessary training and support required by the franchise agreement.

Our franchise attorneys could provide the legal guidance needed to start your North Carolina franchise today. A Charlotte franchise lawyer could help you along the road to turning your successful business model into a national franchise.

Steps that Every Party Offering a Franchise Must Take

Business owners may make the decision to offer their business model and intellectual property to other potential owners in the form of a franchise. However, they cannot simply advertise this opportunity and strike a deal over a handshake. North Carolina law requires many potential franchisors to register their franchise as a business opportunity with the North Carolina Secretary of State. Under North Carolina Statute §66-97, this includes submitting two copies of a franchise disclosure statement as well as a $250 registration fee. One exception to this rule is if the franchisor has already secured a federal trademark for their franchise. If the franchisor’s federal trademark is registered with the United States Patent and Trademark Office, registration through North Carolina is not necessary.

Another vital step in starting a franchise is creating a federally compliant franchise disclosure document. This document contains vital information to inform potential buyers (or “franchisees”) about the franchisor and the business model. Among many things, this disclosure should include:

  • The name and corporate structure of the seller
  • The name and address of the seller’s officers and a history of any legal or administrative proceedings against those officers
  • The seller’s business experience
  • Details of the services the seller will provide to the buyer
  • A current financial statement
  • Descriptions of the type and length of training provided by the seller
  • Any services that the seller promises to provide in connection with the placement of equipment or supplies
  • Information concerning the securement of a bond, if necessary under the law

Any party wishing to offer a franchise for sale must produce this document and file it with the Secretary of State if they lack a federally registered trademark. Franchisors often retain a dedicated franchise attorney to ensure that this disclosure is complete, legally compliant, and filed correctly.

Completing the Contractual Obligations for Selling Franchise Opportunities

While a franchise disclosure document contains vital information required under Federal and State law, it is not the final franchise agreement that the franchisor will sign with the franchisee. The disclosure document does contain a sample of the franchise agreement, but the parties will often negotiate changes in a final version. A franchise agreement is the contract that details the rights, duties, and obligations of each party throughout the term of the relationship. In exchange, the franchisee provides an upfront payment and always agrees to pay a portion of profits over the length of the contract.

At a basic level, franchise agreements center around exchanging payment for the right to use another party’s intellectual property, business model, and/or products. Franchise agreements should also contain clauses concerning other key provisions, including:

  • Intellectual property concerns involving the use of trademarks, copyrights, and patents
  • A detailed training program that teaches a franchisee how to use or market a product, as well as how generally to run the business

As contracts, these franchise agreements carry the full force of the law. Either party may ask a court to intervene in case of a dispute. Consequently, it is essential that a franchise agreement accurately reflect the wishes and goals of the franchisor for the future of the franchisor/franchisee relationship. When starting a franchise, franchisors should be prepared to follow all relevant State and Federal regulations concerning their business.

Working with an Attorney Can Help You to Start Your North Carolina Franchise

Making the decision to offer your business plan, product, and intellectual property as a franchise is never one that you should make lightly. As a business owner, you follow all the proper steps and procedures to grow your business through franchising. An attorney could help you through every step involved in starting your North Carolina franchise. Contact an experienced franchise lawyer today to schedule a consultation and take your business to the next level.

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