Ms. Azeredo can help clients with preparing or reviewing the documentation for franchises and business opportunities, as well as with differentiating between business opportunities and franchises.
Most franchises and many business opportunities implicate both federal and state regulatory procedures. The difference between franchises and business opportunities can be subtle.
Basic Definitions and Overview
A franchise is the sale of a common brand or operating system which ensures standardization among products. National chain restaurants or retail stores are some of the most recognizable franchises.
In Maryland, a business opportunity involves the sale or lease of another’s product or service in a way that enables the purchaser to establish a business. They are essentially prepackaged deals offered to beginning entrepreneurs. Typical business opportunities involve the sale of vending machines, greeting card display racks, and 900 telephone lines.
Maryland requires the sellers of both franchises and business opportunities to file disclosure statements with the Securities Division of the Maryland Attorney General before advertising or soliciting within the state. Maryland also requires sellers to provide certain information for buyers. Most franchises and many business opportunities also must comply with requirements established by the Federal Trade Commission (FTC).
Whether you are considering investing in or offering a franchise or a business opportunity, it is important to consult with an attorney. As an experienced entrepreneur herself, Ms. Azeredo is well-placed to advise on the nuances of due diligence and compliance in Maryland.
About Franchises
Standardization is a key element of franchises. It allows consumers to be certain an item like a McDonald’s Big Mac will taste the same wherever it is purchased. To maintain the value of the brand, franchisors include extensive rules in their franchise agreements to ensure every operator is doing the same thing. A franchise therefore has extensive and mandatory support programs involving ongoing periodic contacts with corporate personnel for marketing, staff training, and technology. In exchange for this support and the benefit of an existing brand, franchisees typically have a contractual commitment to pay the franchisor fees (royalties) in exchange for the continuing right to use the brand and operating system. Royalties can be fixed periodically or may be expressed as a percentage of your sales. Finally, franchise agreements generally contain considerable legal restrictions which include ongoing compliance with federal and state laws and regulations. They also include the standard requirements of the Uniform Franchise Offering Circular (UFOC), which includes information about the company and opportunity, any litigation and bankruptcy, all fees and costs, all rules and restrictions related to the business operation, and the audited financial statements of the franchise company. Again, compliance with state and federal regulations is essential for franchises. Whether you are considering selling or purchasing a franchise, an experienced attorney like Ms. Azeredo can assist with the filing requirements or due diligence.
About Business Opportunities
A seller of a business opportunity offers considerable latitude for the buyer to operate as an entrepreneur. In some instances, they may require operating under a common brand but typically do not pay much attention to how your business operates after it opens. A seller of a business opportunity may offer some support, but it is usually offered rather than mandated. The onus is usually on the on the buyer to reach out to the seller of the business opportunity for assistance when necessary. Purchasers of a business opportunity are usually not obligated to make ongoing payments to the seller. Agreements pertaining to the sale of a business opportunity are generally considerably more sparse than those contained in a franchise document because the seller is not required to prepare any document like the UFOC. Nevertheless, because business opportunities are more difficult to define than franchises, it is important to consult with an experienced attorney like Ms. Azeredo before selling or investing.