How to Get Started
A non-United States company should open at least one “company-owned” location(owned by the franchising entity) in the United States, before it begins to franchise in theUnited States. It needs to have this experience, so that it will know what is involved inopening a store in the United States, in terms of start-up costs, fees, build-out,government permits, supplies, and other aspects of the operations. This will also give itexperience in determining the demand for the products and services in the United States,as well as the right form of marketing and pricing.The experience of opening and operating a store in the United States will also give theforeign company the opportunity to “Americanize” the services and products, tryingdifferent business methods, branding, and pricing for the United States market. Onlyafter it has this first-hand experience in the United States, will the company be ready tostart offering franchises in the United States.
Normally, we advise foreign companies to form a United States affiliate company, whichwill issue the franchises in the United States.This accomplishes a number of things: 1) limits potential liability of the “Mother”company if franchising in the United States does not go well; 2) avoids the possibilitythat a United States taxing authority may declare the”Mother” company must report all of its income to the United States taxing authority; and, 3) makes it less expensive toprepare audited financial statements for the franchising entity.
Trademark rights are generally determined in the United States by priority of use, and notpriority of registration. Nevertheless, a company that is considering franchising in theUnited States should register its trademark as soon as possible. Registration serves anumber of useful purposes, including putting the world on notice that the owner considersit a protected trademark, and also providing additional remedies if someone uses thetrademark.United States trademark law allows an applicant to file an application for trademark registration even before the applicant has started using the trademark in the United States(an “intent-to-use” application), provided that the applicant files a certification withinthree years after the application is approved confirming that it has in fact started using thetrademark in the United States.
Training, Communication and Support
To succeed in any country, a franchisor must provide good training, support andcommunication.