Recently on our blog we completed a series based on the Franchise and Business Opportunity Project of the North American Security Administrators Association, Inc. [NASAA] purposed Multi-Unit Commentary [“Commentary”]. The goal of the commentary was to provide conformity and uniformity with the ever growing presence of the multi-unit arrangements within the franchise industry.
While franchise brokers are not within the scope of the Commentary, the Commentary does provide an aside regarding Franchise Brokers. Franchise Brokers are included in the substance of the Commentary because, in the words of the Commentary, Franchise Brokers do not sign a franchise agreement. As also noted Franchise Brokers are not employees of the Franchisor. They are independent sales agents. A Franchise Broker may solicit prospective franchisees for one franchisor, but most typically a Franchise Broker solicits a portfolio of franchise opportunities.
A Franchise Broker is dissimilar from a subfranchise and area representative in that the Franchise Broker does not pay the Franchisor for the right to solicit prospective franchisees. Akin to the subfranchise and area representative, however, the Franchise Broker does receive a commission or a portion of the initial franchise fee in exchange for soliciting prospective franchisees.
Let’s take a look at some disclosure and state registration issues related to Franchise Brokers.
Does your system work with franchise brokers? Are you a franchise broker? Tell use about your experience.