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What are obligations I have as a franchisee?

On Behalf of | Feb 15, 2023 | Business & Commercial Law

Opening up a franchise location may give you the advantage you need to create a successful small business. However, becoming a franchisee involves meeting certain obligations. Otherwise, you could run into legal problems and your enterprise might fail.

Chron describes different duties you may become responsible for. The following information details some common obligations of many franchisees.

Meeting territory requirements

You cannot set up your franchise location anywhere you wish. You must check with your franchisor first since your geographic territory may already have franchisees operating. Opening another location would risk competing with the other franchise locations. By contrast, you might be able to open multiple locations if an area is mostly empty of franchisees.

Complying with local business laws

Even as a franchisee, you must follow the laws of your state and community that govern small businesses. You may need to obtain a license to run your franchise in your locality. You should also know about occupancy and building permits required to set up your business.

Paying local and federal taxes

You also become responsible for whatever business taxes you must pay, including state and federal taxes. Additionally, you must withhold taxes from employee payrolls to meet income, Social Security and Medicare tax requirements.

Paying off business loans

While your franchisor may help you out in certain areas, you must still bear the financial risks of taking out loans to fund your franchise location. So you could experience financial hardships and even insolvency if you cannot service your loan while running your business.

Given the complexities of franchise law, it is important to examine your situation as carefully as possible. Doing so may hold the key to your entrepreneurial success.