A franchise business is a smart choice. It is accessible because of the structure and the business module that it follows. Associating with a franchise means that you are backed by a strong team that has a proven business model, as well as a brand name that has a structured and famed value among the customers. While setting up a business is not that simple, not knowing about the business licenses is a hurdle for every newbie in the business. Although franchises guide all their franchisees to understand business licenses that need to be procured, it is a must to know all about business licenses that your franchise requires.
The first step to building your new business is to obtain your franchise license.
Differentiation between Franchising and Licensing :
You automatically are entitled to a license when you buy a franchise. That is to ensure that you have an upper hand on the brand and the operating methods of the business. The most significant perk of having a franchise is a license to use the marketing materials, brand name, business model, and other facets of the parent company to build your own independent franchise. The franchise license is different than other types of licensed businesses.
- A franchise license provides “no restricted access” to duplicate the business in your location.
- A franchise license comes with stipulations that you will manage and operate the business under the franchisor’s or the parent company’s set rules.
The franchisors have their own set of regulations with the federal as well as the state governments. Here is the list of things that a franchisor takes care of in terms of paperwork and licensing:
- Federal Government Registrations
- State Licensing
- Legal and Regulatory Requirements
Federal Government Registration
The Federal Trade Commission (FTC) does not require the franchise or the franchisor to do any type of registration. Rather it requires the franchisor, to present the franchisee with a Franchise Disclosure Document (FDD). This document dispenses particulars about what the franchisee can expect when buying the franchise. This document ensures you have the knowledge of the investments, projections, and milestones achieved to validate the projections before you make the investment decisions.
State Licensing
As a franchisor, you must go through the state-affiliated business license procurement procedure. At present, only thirteen states require a franchise to register and they are :
- California
- Hawaii
- Illinois
- Indiana
- Maryland
- Michigan
- Minnesota
- New York
- North Dakota
- Rhode Island
- Virginia
- Washington
- Wisconsin
All this means is that the franchisor has filed the necessary documents with the state. Beyond that, it’s up to you to protect yourself. In addition, there are also other states, which don’t require registration of the FDD but require the franchisor to file its FDD with the state in order to sell franchises there. These states are:
- Connecticut
- Florida
- Kentucky
- Maine
- Nebraska
- North Carolina
- South Carolina
- South Dakota
- Texas
- Utah
Legal/ Regulatory Requirements
Licensing requirements vary with respect to the industry as well as the state. It is quite obvious that the licensing for that restaurant would be different from a daycare facility.
One of the ways franchisors support their franchisees is with legal assistance. This includes guiding the franchisee to get the right licenses to operate the specific franchise.
For detailed information on state-specific licenses visit: U.S. Small Business Administration website
Getting Started
The best way to find out the specific licenses needed in addition to your franchise license is to talk to the franchisor. They have the expertise in your industry and location to ensure you are fully covered to operate your new business.
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