A franchise is when a franchisor sells the right to use its brand, systems, and business methods. The person who purchases the right to use the franchisor’s business model is called the franchisee.
North Carolina has an abundance of franchises. Some of the most popular include Subway, McDonald’s, Pizza Hut, and Burger King. But there is a plentiful amount of other smaller franchises, as well, such as Mosquito Joe, Blaze Pizza, and uBreakiFix. An entrepreneur can go into virtually any line of business they want using the franchise model.
Franchises are regulated under a patchwork of state and federal laws. Under federal law, franchises are regulated under the Federal Trade Commission Franchise Rule. The Franchise Rule requires franchisors to provide certain disclosures before the franchise is purchased so that the franchisor goes into the agreement with open eyes, knowing what the risks and benefits are.
States are also free to pass their own laws about franchises. Many states have, including California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.
North Carolina does not have laws specific to franchises. However, other North Carolina laws still have the effect of regulating franchises. Under the Unfair and Deceptive Trade Practices Act, G.S. § 75-1.1, a violation of most Federal Trade Commission rules is automatically a violation of North Carolina law. This means that if a franchisor violates the federal FTC Franchise Rule, it is probably a violation of North Carolina law, too.
The North Carolina Business Opportunity Sales Act, G.S. §§ 66-94, is another state law that often applies to franchises. This law says that when someone sells products or services for starting a business (which is almost always the case in franchises), a disclosure document must be filed with the North Carolina Secretary of State. If the statements in the disclosure act turn out to be false, the franchisee may be able to void the contract, get back their money, and sue for any damages.
DYE CULIK PC represents franchisees at any stage of the franchise process. Whether you need a Franchise Disclosure Document reviewed, or are having issues with your franchisor and need to avoid litigation, we can help. Give us a call at 980-999-3557 to see how we can help your franchise succeed.
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