New York Franchise Law Legal Questions

When a business owner decides to become a franchisor, that means the business will license its trademarks, menus, the look of the business, the operating manual and operating processes to unrelated business owners who will open the same business at a different location.  There are both state and federal laws that govern franchising.  New York requires you to complete the requirements stated by the United States Federal Trade Commission ("FTC") in its Amended Franchise Rule.  The Rule and other publications may be accessed on the internet at http://www.ftc.gov/bcp/menus/resources/guidance/franchise.shtm (cut and paste this link into your browser, or go to www.ftc.gov and search for "franchise"). The federal rule known as Amended Franchise Rule requires businesses that want to sell franchises to comply with a complex list of disclosure requirements in a Franchise Disclosure Document.  15 states also regulate the sale of franchises, and many of those states have specific additional requirements for the Franchise Disclosure Document and Franchise Agreement.  One of the things you have to supply to prospective franchisees is financial statements from your operating business, and another thing you have to disclose is how much it will cost the franchisee to open the new business, including all costs such as the lease, the equipment, advertising, training, inventory, food supplies, insurance, permits and licenses, employee pay and so on.  After the franchisor complies with these requirements and sells the franchises, the franchisor is not the owner of the new franchisee restaurants.  However, the franchisor may collect fees from the franchised restaurants including an up-front fee to cover costs, and a continuing royalty on the franchisor trademarks and business systems.  The franchisor may decide to require that the franchisee sell the business to the franchisor if the franchisee goes out of business or wants to sell. Franchising is a very complex business that requires legal and accounting assistance.  Consult the Federal Trade Commission website www.ftc.gov for a publication about buying a franchise as well as for publications about selling franchises. I am an attorney licensed to practice law in the state of Ohio and I an not licensed to practice law in the state of New York.  This answer is intended to give general legal information and is not specific to your set of facts.  No attorney client relationship is established by this answer to your question.... Read More