Expanding a successful business through franchising can be a lucrative option, especially in Texas, where the economic activity has been strong in recent years. The franchise business model is designed to be mutually beneficial, where both the franchisor and franchisee gain. However, before opening a franchise in Texas, it is crucial to have a clear understanding of the state’s laws and regulations pertaining to this process.
In a franchise, the franchisor permits the franchisee to operate a business model and marketing plan that has been proven to work and grants a license to use certain trademarks and intellectual property. The franchisee, in turn, agrees to operate the business according to the franchisor’s terms and typically pays a royalty based on a percentage of sales.
Texas is not a franchise registration state and has not enacted any specific franchise laws. Rather, the state has passed business opportunity laws, which means that before individuals can offer or sell a franchise in Texas, they must complete a Business Opportunity Exemption Notice with the Texas Secretary of State. When an individual files the exemption notice, they certify they have an appropriately issued Franchise Disclosure Document (FDD) that complies with the Federal Franchise Rules. Once the one-time exemption notice is filed, the individual can sell franchises in Texas. Unlike other filing states, Texas does not require franchisors to renew their exemptions annually. However, if a franchisor’s address changes, an update will need to be filed with the state, but no additional payment will need to be made.
If the business opportunity does not qualify for the franchise exemption, the business opportunity must be registered with the Texas Secretary of State. Individuals may also be able to submit a Business Opportunity Registration Form, which will include all the information required for business opportunity disclosures.
A check will also need to be made to the Secretary of State, which will represent the exemption notice filing fee.
At FortmanSpann, we help individuals who are considering purchasing a franchise. As part of our service, we carefully analyze all documents provided by the franchisor, assess their financial condition, and evaluate the franchisor’s reputation, among other things. We work with our clients to set realistic goals and expectations based on a thorough evaluation of the franchise rather than relying on the sales pitch of the franchisor or franchise consultants. Our ultimate goal is to help our clients make informed decisions by thoroughly evaluating the risks and opportunities associated with the franchise.
If you want further details about the franchise filing process in Texas or are considering buying a franchise, contact FortmanSpann today and find out how our experienced legal team can help you.
