What are the rules for setting up a franchise?

In New Jersey, setting up a franchise requires adherence to both state and federal laws. The Federal Trade Commission (FTC) has mandated the franchisor (the company that offers the franchise) to provide prospective franchisees with a Franchise Disclosure Document (FDD). The FDD must include 23 specific points of information about the franchise, including the franchisor’s business background, fees, financial statements and contracts. The franchisor must also abide by state laws. New Jersey requires all franchisors to register with the state’s Department of Consumer Affairs, as well as to provide potential franchisees with a written disclosure statement that contains certain key information. These requirements include a disclosure of any current litigation the franchisor is involved in as well as a full description of the franchise’s business operations. The franchisor must also create a Franchise Agreement, which spells out the rights and obligations of the franchisor and franchisee. This document must include information about the length of the contract, the territory that the franchisee will operate in, the products that can be sold, the duration of the franchise, and fees associated with the franchise. In addition, New Jersey franchisors must provide potential franchisees with the opportunity to speak with existing franchisees. This gives prospective franchisees the chance to get a better sense of what franchising entails and to gain insight into how successful the franchise has been for those already involved. Following these steps will ensure that the franchisee is protected and informed and that the franchisor is compliant with both state and federal laws.

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What are the rules for setting up a franchise?

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