Michigan Business Lawyer Blog

The Federal Trade Commission (FTC) approved a new Franchise Rule on January 22, 2007. The new Rule is in the form of an amendment to the old FTC Franchise Rule.

The amendment to the old FTC Franchise Rule modifies what franchisors must disclose in their franchise disclosure documents (formerly known as Uniform Franchise Offering Circulars (UFOC's)), as well as the timing requirements for making the required disclosures. The new Franchise Rule was effective on a voluntary basis on July 1, 2007. The new Franchise Rule will become effective on July 1, 2008.

The new Franchise Rule contains a number of innovative modifications to the old Franchise Rule. These modifications include the elimination of the "first personal meeting requirement", the elimination of the requirement to separately furnish a completed franchise agreement, and the addition of an allowance for electronic delivery and execution of the franchise disclosure document and agreement. There are also changes to requirements concerning financial disclosures, disclosure of franchisee associations, disclosure of confidentiality clauses and agreements, as well as a number of other changes.

Franchises can be a very complicated area of business law. Any Michigan business or resident who is involved in a franchise transaction should seek the counsel of an experienced Michigan franchise lawyer to help them through the complexities and potential pitfalls of franchise law.

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Statutes requiring franchise registration and the delivery of disclosure documents
to prospective franchisees prior to an offer to sell or a sale of a franchise have been enacted in California, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. In addition to these states, Hawaii and Oregon impose disclosure, but not registration requirements on franchisors. Hawaii also requires that the disclosure document be filed with state authorities and thereby made available to the public. The business opportunity laws in Nebraska, Texas, and Kentucky require franchisors to provide disclosure to prospective franchisees, file a one-time notice of exemption, and pay the required fee to avoid the substantive requirements of the statute.

Twenty-two states (including some who have franchise disclosure statutes) have enacted “business opportunity” legislation requiring registration and/or disclosure of information concerning business opportunity ventures. Two other states have enacted laws that regulate only the substantive aspects of selling business opportunities. In some situations, these statutes are applicable to selling franchises. However, in many situations, if a state has a separate statute dealing with registration and/or disclosure relative to selling franchises, franchisors will be exempted from complying with that state’s “business opportunity” laws.

Most state franchise statutes require the advertising and promotional material that offers franchises for sale be submitted to state franchise authorities for review several days prior to the first publication or dissemination in the state. Each state also has various laws which govern a franchisor’s interaction with the franchisee as well as business opportunity laws that may apply to the offer to sell a franchise or the administration of a franchise agreement.

Posted by Michael J. Hamblin | Permalink | Email This Post

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Franchisors have a number of obligations to both prospective and actual franchisees. The main obligation is one of disclosure regarding the franchise system and the business opportunity available to the franchisee. This post discusses the Federal disclosure obligations imposed on Franchisors.

Under federal law, a franchisor is required to furnish to prospective franchisees a certain disclosure regarding the franchise at a specified time. Disclosure is only required to be made to prospective franchisees. A prospective franchisee is any person, including any representative, agent, or employee of that person, who approaches or is approached by a franchisor or franchise broker or any representative, agent, or employee thereof, for the purpose of discussing the establishment, or possible establishment, of a franchise relationship involving such person.

Continue reading " Could a Franchise Be a Viable Opportunity for a Michigan Entrepreneur? (Part 3) -- Franchisors' Federal Disclosure Obligations" »

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This post is the second in a series of posts in which I discuss the basics of federal and Michigan franchise law for entrepreneurs. My goal is to provide a basic overview so that those Michigan entrepreneurs who are considering purchasing a franchise will have a beginning resource to help guide them in their deliberations. In my first post, I discussed the two types of franchises that can exist: a package franchise or a product franchise. In this post, I discuss the three characteristics that must be present in a relationship for either a package or product franchise to exist.

Continue reading " Could a Franchise Be a Viable Opportunity for a Michigan Entrepreneur? (Part 2) -- What Constitutes a Franchise?" »

Posted by Michael J. Hamblin | Permalink | Email This Post

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In certain situations, a franchise may be a good opportunity for a Michigan entrepreneur to start his or her own business. However, anyone considering buying a franchise should understand exactly what they are getting into. Depending on the situation, a franchise could be a good business opportunity, or it could be a financially disasterous nightmare. I always advise clients who are considering franchise opportunities to proceed with maximum caution. Needless to say, anyone who is considering buying a franchise should consult with a competent Michigan franchise lawyer before signing any paperwork.

This post is the first in a series of posts in which I will discuss the basics of federal and Michigan franchise law for entrepreneurs. My goal is to provide a basic overview so that those Michigan entrepreneurs who are considering purchasing a franchise will have a beginning resource to help guide them in their deliberations.

Continue reading "Could a Franchise Be a Viable Opportunity for a Michigan Entrepreneur? (Part 1) -- General Overview of Franchises" »

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Franchise Law

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