Prospective Franchisee Due Diligence Part 1

May 9, 2013, 7:30 AM

This post, and the series of posts that will follow it, will outline the due diligence that we recommend for prospective franchisees.

First, assuming the prospective franchise will have a place of business in Virginia, the prospective franchisee should ensure that its chosen franchisor is properly registered to offer franchises within Virginia. This information is available on-line at the Virginia State Corporation Commission Retail Franchise Division website.

A franchisor that is not properly registered to offer franchises for sale within the Commonwealth of Virginia presents a major red flag. Not only will the sale of the franchise be illegal, and therefore potentially voidable by the prospective franchisee, but, more importantly, failure to register reveals either franchisor ignorance of pertinent franchise laws, or its conscious disregard of those laws. (While the franchisor could be in the process of registering its franchise offering with the Commonwealth of Virginia, a prospective franchisee should confirm this with both the franchisor and with the State Corporation Commission Retail Franchise Division. Moreover, the franchisor should not provide a prospective Virginia franchisee with a Franchise Disclosure Document before it has been properly registered with the Commonwealth of Virginia).

For further information regarding this topic, or to discuss potential actions to take upon learning your chosen franchisor is not properly registered in Virginia, please contact Stephen E. Story at (757) 624-3257 or sestory@kaufcan.com.
Stephen E. Story