Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
Item 15 of the amended Rule requires franchisors to disclose whether franchisees are required to participate personally in the direct operation of the franchise. Among other things, the amended Rule’s Item 15 calls for disclosures stating:
- any obligation for the franchisee to participate directly in the business that arises from the parties’ franchise agreement, or from any other agreement,15 or from the franchisor’s practice;
- whether the franchisor recommends direct participation; and
- if personal “on-premises” supervision is not required, any limitations on whom the franchisee can hire as a supervisor, whether the supervisor must successfully complete training, and any restrictions (e.g., covenants not to compete or trade secrecy agreements) that the franchisee must place on his or her manager.
If the franchisee is not an individual but operates as a business entity – e.g., a corporation or a partnership – Item 15 requires the franchisor to disclose the amount of equity interest, if any, that the on-premises supervisor must have in the franchise.
This article is part of a series of articles on starting a franchise in Minnesota.
CREDIT: The content of this post has been copied or adopted from the Federal Trade Commission’s Franchise Rule Compliance Guide.