Restrictions on Franchisees Baring Ownership in Other Companies Considered
If you are going to buy a franchise business opportunity, then you need to do a little extra work while looking over the franchise disclosure documents and I’d like to specifically discuss the section that addresses restrictions of ownership in ancillary companies, suppliers of the franchisor and ownership of the competitors of the franchising company. You’d be surprised how competitors of a franchisor will try to get a spouse or family member or even a close associate to buy a franchise just to learn the secrets and inner workings of the franchisor’s system.
It happens all the time, such is one of the realities of business. Corporate Espionage is alive and well in the franchising sector, and when a franchisor is growing fast and winning market share, well, let’s just say it scares the bejesus out of the competition, as well it should. I seriously doubt there is a single franchisor in existence worth their salt that has not had a competitor attempt to shop them or pretend to be a franchise buyer in order to receive information or get a copy of the Franchisor’s FDD or UFOC.
This is one reason that franchising companies make it known to franchise buyers of their franchise opportunities that they will not allow anyone to buy into their franchise that has a stake in a competitive business. And they also are careful not to allow vendors to buy-in, as often they also sell to the competition, besides other franchisees will complain if one franchisee is involved as vendor and money is funneled towards that vendor.
When you see this clause in your franchisor’s disclosure documents, remember that these notations are there for a reason. Anyone who violates these stipulations can find themselves terminated for cause and a lawsuit pending with damages to be assessed. Courts will generally find in favor of a franchisor in this case, when someone has misrepresented themselves to steal proprietary information. Please make a note of this.
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