What information should a franchisor give to a prospective franchisee?

In an increasing number of countries there are specific statutory disclosure requirements imposed on franchisors.  Even where such disclosure is not mandatory, the following disclosure is recommended:

1. Type of business, its structure like whether it is a group or one company.

2. Business experience of the franchisor and its directors and officers internationally.

3. Type of franchise business format, product line etc.

4. Its accounts and financial status, along with information on any loans, charges on its assets, creditors details, and any bankruptcy proceeding it has been involved in including directors and personnel involved.

5. Litigation it has been involved in, both in civil and criminal law.

6. Reputation of its brand name or goodwill and any public figure who may be associated with it.

7. All the requirements a franchisee would have to fulfil in order to participate in the franchise:

(a) Funds to be paid to franchisor by franchisees like royalties, technical fees, lump sum payments, recurring fees that would be required.

(b) Obligations to purchase on the part of the franchisees, such as raw material from the franchisor for goods in question, real estate, services of the franchisor, signs, fixtures etc.

(c) Restrictions on sale, tie-in and by-back arrangements by the franchisor of the franchisees product.

(d) Training programmes offered by the franchisor and level of supervision involved.

(e) Site selection and design of the outlet, to what extent it needs the approval of the franchisor.

(f) What sorts of activities or breaches would result in termination of the franchise contract. How can the franchise agreement be renewed?

Information on the franchisee

1. Details of the type of business.

2. Its financial records, its accounts, balance sheets, loans, what assets it has, both movable and immovable and any charges on them, types of creditors, details on bankruptcy if it was ever faced with it.

3. Amount of capital it has and is able to outlay for the franchise operation.

4. Details on its directors, officers, number of employees to be supervised and level of operation.

5. Ability to expand the business.

6. Types of services offered, in terms of marketing, advertising, distribution of goods, management skills and its ability to obtain all the clearances from authorities to set up the franchise business or outlet.

7. Litigation history, if any.