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How to Safeguard Franchise Fraud

The case of buying, owning, and operating a franchise can seem quite compelling: You, at least in a sense, own your own business, but you are not alone during the operation. The product or service has already been fully developed; it's simply up to you to offer the product or service on your own terms.

There are people out there offering fraudulent opportunities; and while you may think that it could never happen to you, fraudsters are getting more sophisticated in their methods of deception.

What is Franchise Fraud?

Common forms of franchise fraud include misleading and fraudulent sales practices used to entice prospective franchisees to purchase and invest in a franchise. Misleading sales tactics can come in many forms. One of the more common forms of fraud in the franchise arena is the making of false or misleading statements about projected financial performance. It is, in fact, unlawful for a franchiser to provide any representations of potential or actual financial performance to prospective franchisees unless the franchiser provides the information in the franchise disclosure document (“FDD”), along with certain required information.

Additionally, franchisers or franchise brokers may induce a prospective franchisee to invest his or her life-savings in a franchise by making misstatements about the nature of the business, the nature of the support the franchiser provides, the time it takes to break even, or the uniqueness of the franchise system’s products or services.

How Do You Spot Franchise Fraud?

If the franchise opportunity presents itself as “easy” or “quick” through advertising, that’s a telltale sign the offer may be fraudulent. While setting up a franchise can be easier than setting up your own business from scratch, they do indeed take work. Nothing in franchising is easy.
Additionally, if success is presented at a “discovery day” and in franchiser marketing materials (even if only implicitly) as essentially a guarantee, a prospective franchisee should be cautious. Any sort of high-pressure sales tactics should also raise red flags for the prospective franchisee — if the franchise is that good, you likely have heard about it and can get positive reviews from current and former franchisees.

Code of Conduct as per Indian Franchise Association

  1. A franchise is a specific type of business and the Franchising Code of Conduct contains rules that govern franchise arrangements.
  2. The Franchising Code regulates the conduct of franchisers and franchisees, with the aim of ensuring that franchisees are sufficiently informed about the franchise.
  3. The code informs franchisers and franchisees of their rights and obligations under the code and enforcing it where necessary.
  4. The code applies to franchise agreements entered into, renewed or extended. 

A franchise agreement is an agreement(written, verbal or implied) between a franchiser and franchisee with the following characteristics:

  • The franchiser grants the franchisee the right to carry on the business of offering, supplying or distributing goods or services in India under a system or marketing plan substantially determined, controlled or suggested by the franchiser or an associate of the franchiser.
  • The operation of the business will be substantially or materially associated with a trademark, advertising or commercial symbol that is owned, used, licensed or specified by the franchiser.
  • The franchisee is required to pay, or agree to pay, a fee before starting or continuing the business.
  • If the Franchising business is of interest to you, one such website Select Dine, has some highly credible Food and Beverage brands which can make agreement. Feel free to visit and browse the brand opportunities and then can contact with our team. The team will get in touch with you to help you understand the brands and the investment required.

Hope this helps. Cheers!


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