Home | Protecting Consumers | Safeguarding Children | Seniors | Law Enforcement | Site Map | Search
 

Maryland Securities Division - Investor Education

How to Choose a Franchise or Business Opportunity

Investigate Before You Buy

  • Avoid high pressure sales tactics, and don't purchase anything in a hurry. Legitimate companies will expect you to investigate their offering and comparison shop.

  • 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 arise.

Registration

  • 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.

What 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 financial statements.


  • 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 mean nothing.

Claims 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.


  • Franchisors 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.

Questions to Consider Before Buying a Franchise or Business Opportunity

Ask the Franchisor/Seller

  • Are you registered with the Maryland Securities Division?


  • Do you have an offering circular or disclosure statement? When are you giving them out?


  • 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 am buying?


  • How much is your initial fee? Are there continuing fees and royalty payments?


  • What ongoing assistance do you provide?

Ask Yourself

  • How much can I afford to invest?


  • Do I have the necessary background and skills to successfully operate this business or franchise?


  • Am I able and willing to follow the rules and restrictions imposed by the franchisor or seller?


  • 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?
  • 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:


  • What was their total initial investment?


  • Were 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 statement?


  • 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 opportunity?

Make an Informed Decision

Purchasing a franchise or business opportunity is a serious investment and should be done only after you have considered all the relevant facts and information.

Take 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.

Call us. We're here to help!
The Maryland Securities Division
(410) 576-7042

 
 

Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
Home | Site Map | Privacy Policy | Contact Us