Securities Division - Investor Education
to Choose a Franchise or Business Opportunity
Before You Buy
high pressure sales tactics, and don't purchase anything in a hurry.
Legitimate companies will expect you to investigate their offering and
- Most franchises
and business opportunities involve a substantial investment. Take the
time and spend the money to seek competent legal advice before investing.
Have a lawyer review the contracts or agreements before you give the
seller any money. You are better off spending money now to learn that
there are no problems. You could be spending thousands later if problems
- It is
against the law for anyone to sell a franchise in Maryland that is not
registered with the Securities Division. It is also unlawful to sell
a franchise by fraudulent means. Inquire about the franchisor's registration,
and then call the Division to check.
- It is
against the law to sell a business opportunity without first filing
the appropriate documents with the Division. It is also unlawful to
sell a business opportunity by fraudulent means. Inquire about whether
the seller has filed with the Division, then call us to check.
to Look For
- All franchisors
and sellers of business opportunities are required to give you an offering
circular or "disclosure statement" at the first personal meeting or
at least 10 business days before you sign a contract or pay any money.
- The disclosure
statement must contain specific information including the history and
background experience of the franchisor/seller; the identity of corporate
officers; the company's and the officers' litigation history; the amount
of your initial investment; the parties' obligations to each other;
copies of all contracts or purchase agreements; and copies of the franchisor's/seller's
- Make sure
you get a disclosure statement, and then read ALL of this information
carefully. Do not sign a contract or pay any money until you have had
the opportunity to review the disclosure statement. Also remember that
oral statements and promises that are not also in the disclosure statement
About Earnings and Profits
- It is
against the law for a franchisor or seller of a business opportunity
to give you information about potential earnings or profits without
a factual basis for that information. Any claims about earnings, sales,
gross sales or projections of income must be based upon actual operating
history and must be provided as part of the disclosure statement. A
franchisor or seller is required by law to provide you with substantiation
of any earnings claims. If you are given information about earnings
or profits that is not also in the disclosure statement, treat that
information as suspect.
are also required to provide you with the names, addresses, and telephone
numbers of at least 100 nearby franchisees. Contact and talk to
as many franchisees as you can. This information can you give you
a clearer picture of how a franchise system actually operates.
to Consider Before Buying a Franchise or Business Opportunity
- Are you
registered with the Maryland Securities Division?
- Do you
have an offering circular or disclosure statement? When are you giving
- How long
have you been in this business?
- How many
franchise outlets currently exist (or how many business opportunities
have you sold)? Where are they located?
- How many
financial outlets have closed or transferred? How many buyers of the
business opportunity have asked for refunds?
- What do
your financial statements reflect? What assurances do I have that you
can continue to provide and stand behind the products or services I
- How much
is your initial fee? Are there continuing fees and royalty payments?
- What ongoing
assistance do you provide?
- How much
can I afford to invest?
- Do I have
the necessary background and skills to successfully operate this business
- Am I able
and willing to follow the rules and restrictions imposed by the franchisor
- Do I understand
every part of the agreement I am asked to sign. Have I sought the advice
of a lawyer, accountant or other counselor?
an Informed Decision
- Have I
checked out this company with the Maryland Securities Division?
- Have I
been given at least 10 business days to review both the agreement and
the offering circular or disclosure statement?
- Have I
talked to as many of the existing franchisees/buyers as I can? Have
I asked those persons everything I want to know about this franchise
or business opportunity such as:
was their total initial investment?
there any hidden costs?
- Did the
franchisor/seller fulfull all of its obligations?
- Was the
training what was expected?
- If the
franchisor or seller is making claims about potential income or earnings,
is this information also contained in the offering circular or disclosure
- Am I being
pressured to sign a contract or pay a deposit before I have had the
time I would like to thoroughly investigate this franchise or business
a franchise or business opportunity is a serious investment and should
be done only after you have considered all the relevant facts and information.
the time to make an informed decision. Before purchasing, please call
us to verity that the franchise or business opportunity is registered
and to inquire about any complaints filed against the franchisor or seller.
us. We're here to help!
The Maryland Securities Division