Selling a Franchise: The Laws You Need to Know
If you are selling a franchise, you need to take certain steps to ensure the process is compliant with applicable laws. Most of these laws are imposed at the federal level by the Federal Trade Commission (FTC), though you may also be subject to certain state laws depending on your franchise’s location.
Rules and Regulation
Preparing the FDD
The first step in selling a franchise is to create and submit the Franchise Disclosure Document (FDD) in accordance with state laws. The FDD is a disclosure document required by the FTC that provides pertinent franchise information to prospective buyers.
Filing the FDD
You are not required to file the FDD with the FTC when selling a franchise, as stipulated in the Federal Franchise Rule. You are, however, required by federal law to monitor your own compliance and ensure proper preparation and issuance of the FDD. Depending on the state in which you conduct business, you may be required to register the FDD at the state level.
Disclosing the FDD
After your FDD has been issued and (if applicable) filed with the state, you are required to disclose the FDD to potential buyers. Only after you have delivered the FDD, and the potential buyer signs and returns the FDD, have you completed a proper disclosure pursuant to the Federal Franchise Rule.
Mandatory Waiting Period
- 14-day disclosure period. You must wait 14 days from the FDD signing date before selling a franchise to a potential buyer.
- 7-day contract disclosure period. This is an additional grace period that allows you to address any revisions or additions requested by the buyer. This disclosure period is often unnecessary, because all required documentation is delivered to the buyer before signing the agreement. As such, this period can run concurrently with the 14-day disclosure period.
Executing the Franchise Agreement
After you have fulfilled the required waiting periods and the FDD has been agreed to, the final step in selling a franchise is drafting and executing the Franchise Agreement as required by the FTC.
The franchise agreement is the legally binding contract between you and the buyer that outlines in depth what is expected of the buyer, in terms of how they run and manage the company.
Make Sure Your Sale is Compliant
Selling a franchise can be tricky. Understanding and following the rules governing the process requires significant time and experience.
At Franchise & Business Law Group, we are available to help you navigate the required steps necessary to make this happen. You have enough to worry about while selling your franchise – do not let a mistake or oversight impede the process.
Contact us today to get started.