Buying a Franchise and owning your own business can be very rewarding career, but when things go wrong they can be financially devastating, including personal bankruptcy and loss of your home. Recently, I discussed a topic, which involved a trap that franchise buyers get into partly due to bureaucracy and partly due to an uneven playing field between franchisors and franchisees.

A franchisee bought a franchise and the Franchisor was Head Quartered in Texas. Texas is a franchise notification state. The buyer of the franchise was in California, where the franchisee has permanent residence and where the franchisor had previously registered to sell franchises. In the franchise agreement there is an arbitration clause that any and all disputes be arbitrated in Lubbock, TX.

One of the franchise salesmen said to the buyer prior to purchase that; "if you can get by on $115,000 per year, then you will be okay. If this is the case the law was broken because the company states it does not give out earnings claims. The problem with the "Napkin Trick" or wink, wink earnings claims is that often franchise buyers use this information to make the final decision and therefore, if these ad hoc earnings claims cannot be substantiated then it is a misrepresentation.

Unfortunately, when the franchisee filed a complaint with Texas they got zero satisfaction. The reason they got Zero Satisfaction from Texas is because their franchising notification rules are to protect consumers yes, but only those who live in Taxes. "Texas Residents" that is. Texas sent the complaint directly too the company?

The reason I guess that they sent the complaint or forwarded it to the company is because it is beyond their mandate of jurisdiction for that agency. I feel this is a falling down, because if a company in Texas defrauds consumers in any state, then that is still a risk to consumers in their state. That is of course if in fact they defrauded.

Franchising rules and regulations are cumbersome and do not prevent misrepresentations, it is hard to regulate morality. More rules and regulations give the franchise buyers belief that things are safer than in reality. Due diligence on the part of the franchise buyer is needed and it is wise to have a franchising attorney review such documents. Please consider all this in 2006.