This preview shows page 1. Sign up to view the full content.
Unformatted text preview: like
pyramid schemes. They misrepresented potential risks, accepted large fees up front, and bilked millions of dollars from small investors. The
FTC now requires chains to provide lengthy disclosure statements that spell out their rules for prospective franchisees. The statements are
often a hundred pages long, with a lot of small print.
Federal law demands full disclosure prior to a sale, but does not regulate how franchises are run thereafter. Once a contract is signed,
franchisees are largely on their own. Although franchisees must obey corporate directives, they are not covered by federal laws that protect
employees. Although they must provide the investment capital for their businesses, they are not covered by the laws that protect independent
businessmen. And although they must purchase all their own supplies, they are not covered by consumer protection laws. It is perfectly legal
under federal law for a fast food chain to take kickbacks (known as “rebates”) from its suppliers, to open a new restaurant next door to an
existing franchisee, and to...
View Full Document
This note was uploaded on 02/25/2014 for the course MGMT 120 taught by Professor Litt during the Spring '08 term at UCLA.
- Spring '08