Thinking of starting a franchise relationship?

If you want to use the trademark of another company for your own business, you must start a franchise relationship. A franchise relationship is a legal and commercial connection that allows the owner of a trademark to give you rights to use their name and advertising symbol for your business.

When giving you the rights to their trademark, the owners will usually ask for something in return. In most cases, they try to negotiate a certain percentage of the profits from your new business venture. The payment you make to the owner is called a "royalty." It is important to understand the concept of royalties before you start negotiating a franchise relationship.

State laws govern franchises and force businesses to disclose certain information like average profits or operating costs. These disclosures could have a direct effect on your business. You must understand the significance of these disclosures before starting a relationship with the owner of a trademark. When the negotiations are complete, you will have to sign a franchise agreement and a franchise disclosure document (FDD). An FDD is a complicated document and can be difficult to understand. It includes all the disclosures that you have to make to the state.

The franchise agreement and the FDD are complex legal documents that a lawyer can easily interpret. It is advisable to involve an experienced franchise attorney to go over the documents and help you protect yourself. It is best to hire an attorney before the negotiation process. The experience of your legal counsel may lead to an improved deal.