Important information for potential Maryland franchise owners

• August 18, 2016
• Business Law

Deciding to start a business is exciting and challenging. It is also often complicated and involves significant initial investment. This is why many aspiring business owners choose to purchase a franchise. A franchise is less costly and involves less risk than starting a completely new business.

Before purchasing a franchise, it is essential to have a thorough understanding of the franchise process. It is also crucial to consider all of the responsibilities and potential issues involved in owning a franchise.

Types of franchise agreements

A franchise agreement spells out the terms of the relationship between an owner of a trademark or advertising name and an individual who wishes to use that name for his or her business.

The owner of the name is a franchisor, who sells goods or services to a franchisee. The franchisee then sells these goods or services to the public under the franchisor’s name.

Franchising can take one of two forms. The first is product or trade name franchising. This is a rather simple franchise arrangement that involves a franchisor simply selling a franchisee the right to use a trademark or brand name.

A less experienced franchisee may prefer a business format franchise agreement. This agreement allows a franchisor to assist with a wide variety of activities. In a business format agreement, franchisors provide guidance with location, product, and marketing decisions. They may even help obtain financing.

Purchasing franchises in Maryland involves several considerations

There are a number of items a potential franchisee must consider before deciding whether to purchase a franchise.

It is a good idea to investigate different options from a variety of franchisors. Avoid franchisors who try to make you rush to a decision. Valid companies understand the decision to purchase a franchise is a major decision, and they expect potential franchisees to shop around.

Once a potential franchisor is selected, verify that it is registered with the Maryland Securities Division. The law requires registration of all franchisors.

A franchisor is also required to provide a “disclosure statement.” This must be provided at the initial in-person meeting, or at least 10 business days before any money changes hands or contracts are signed.

A disclosure statement typically includes:

• A company history
• Information about the franchisor’s previous experience
• Names of any corporate officers
• The franchisee’s initial investment amount

The disclosure statement should also include the terms of the agreement between the franchisor and franchisee. Additionally, details of any previous legal issues must be provided. Copies of all relevant paperwork are also part of a disclosure statement.

One of the main benefits of a franchise agreement is that it gives franchisors the opportunity to share their business experience and training with a franchisee. The only thing required of the franchisee is a desire to succeed in the business.

Remember that deciding to purchase a franchise is a major investment and requires a substantial initial financial investment. That is why it is absolutely necessary to consult with an experienced Maryland franchise attorney before making a decision.

A franchise attorney can review contracts, recognize potential business risks, and help make responsible franchising decisions. With the guidance of an experienced franchise attorney, a franchise owner can feel confident that he or she will be making a wise investment.