Investigate Before Investing
INVESTIGATE BEFORE INVESTING
Guidance for Prospective Franchisees
By Lewis G. Rudnick Rudnick & Wolfe Chicago, Illinois and H. Bret Lowell Brownstein Zeidman and Lore Washington, D.C.
INTERNATIONAL FRANCHISE ASSOCIATION 1350 New York Avenue, N.W., Suite 900, Washington, D.C. 20005-4709 Reprinted 2002 REVISED - JULY, 1992
WASH1\4838466.1
CONTENTS The International Franchise Association IFA Code of Ethics What Is Franchising? Protect Yourself - Watch For The Warning Signals Evaluating The Offer The Franchise Business And The Prospective Franchisee What Are Your Qualifications? What Is The Product Or Service? - The Business Area? Who Is The Franchisor? The Company - Generally Trademarks And Copyrights Management Litigation Profit Projections Franchise Cost - Initial Fees And Cash Requirements Training And Start-Up Aid Location, Territory And “Exclusivity” Operating Practices, Assistance And Controls Premises And Equipment Rehabilitation Assignment - Franchisee’s Right To Sell Term, Renewal And Termination Competition With Franchisor The Contract Aids To Investigation 2
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4 5 6 8 9 10 10 11 13 14 15 17 17 18 20 23 25 28 32 33 34 36 36 37
Regulation Of The Offer And Sale Of Franchises Franchise Laws Business Opportunity Laws Conclusion About The Authors
38 42 46 49 50
The authors wish to express their appreciation to Mark A. Kirsch of Brownstein Zeidman and Lore and Kim A. Goodhard of Rudnick & Wolfe for their assistance in the updating and preparation of the 1992 edition of “Investigate Before Investing.”
3
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THE INTERNATIONAL FRANCHISE ASSOCIATION The International Franchise Association is a trade association representing firms in a wide variety of industries who use the franchising method of distribution. IFA was formed in 1960 by forward looking franchise company executives who saw a need for an organization that would serve the interests of firms involved in franchising. Since its founding, the
Guidance for Prospective Franchisees
By Lewis G. Rudnick Rudnick & Wolfe Chicago, Illinois and H. Bret Lowell Brownstein Zeidman and Lore Washington, D.C.
INTERNATIONAL FRANCHISE ASSOCIATION 1350 New York Avenue, N.W., Suite 900, Washington, D.C. 20005-4709 Reprinted 2002 REVISED - JULY, 1992
WASH1\4838466.1
CONTENTS The International Franchise Association IFA Code of Ethics What Is Franchising? Protect Yourself - Watch For The Warning Signals Evaluating The Offer The Franchise Business And The Prospective Franchisee What Are Your Qualifications? What Is The Product Or Service? - The Business Area? Who Is The Franchisor? The Company - Generally Trademarks And Copyrights Management Litigation Profit Projections Franchise Cost - Initial Fees And Cash Requirements Training And Start-Up Aid Location, Territory And “Exclusivity” Operating Practices, Assistance And Controls Premises And Equipment Rehabilitation Assignment - Franchisee’s Right To Sell Term, Renewal And Termination Competition With Franchisor The Contract Aids To Investigation 2
WASH1\4838466.1
4 5 6 8 9 10 10 11 13 14 15 17 17 18 20 23 25 28 32 33 34 36 36 37
Regulation Of The Offer And Sale Of Franchises Franchise Laws Business Opportunity Laws Conclusion About The Authors
38 42 46 49 50
The authors wish to express their appreciation to Mark A. Kirsch of Brownstein Zeidman and Lore and Kim A. Goodhard of Rudnick & Wolfe for their assistance in the updating and preparation of the 1992 edition of “Investigate Before Investing.”
3
WASH1\4838466.1
THE INTERNATIONAL FRANCHISE ASSOCIATION The International Franchise Association is a trade association representing firms in a wide variety of industries who use the franchising method of distribution. IFA was formed in 1960 by forward looking franchise company executives who saw a need for an organization that would serve the interests of firms involved in franchising. Since its founding, the