International Law

Franchising in India

Image by avlxyz via Flickr

Here is a scary post about franchising from India.

"Taking up a franchise gets you, a recognized format, brand name and a system to generate sales.

Instead of working on strengthening the products or services, you simply focus on increasing sales, as you work on the business and not in the business.

In a weak economy, there are going to be a lot of employees that will be laid off.

Several firms in different industries are laying off employees. Some of them are considering taking up some franchise. Many of these people are taking their severance to start up franchises.

As a franchisor, you should start targeting this category, since they have previously been employees, they are more likely to follow instructions and adhere to the franchise operations.

Also, it means that they would need additional sales training, as well as some entrepreneurial thinking.  

Tie-ups with banks is an additional advantage, if a franchise opportunity has an existing relationship with a bank and their line of business is pre-approved, it acts as an additional benefit, which prospects would consider, before taking up a franchise.

Financial assistance also adds further credibility to the franchise proposal."

Here is what Michael Seid says are the legal requirements to offer a franchise in the United States: "consultant Michael Seid states in his documents that he knows of "no legal or industry requirement that a franchise opportunity must be tested in any particular manner, or that a franchisor cannot sell a franchise opportunity until it has been proven by prior franchisees." He writes that the Federal Trade Commission and state regulators have not established a franchisor "Duty of Competence." Instead, he states, they require franchisors to disclose accurately their experience and history, whatever that may be. 

This is important for prospective franchisees to understand: there is legal requirement to have a proven business model before franchising the business. This is why due diligence is so important.

It is not only important to understand the legal constraints in the franchise agreement, it is more important to understand a) what information you relied upon in the sales presentation, b) whether you can legally rely upon this information, and c) what do about it when you find out that the deal is not what you thought it was.

Any franchisor who tells you that the agreement is not negotiable, and so you don't need to waste time on an attorney, or any attorney who promises to read the contract for you, are both engaged in defrauding you. Get experienced help.

Full post as published by Misleading Advertising Law on January 20, 2009 (boomark / email).