U.S. Franchise Law: A Guide for Turkish Investors Buying a Franchise

Buying a U.S. franchise is one of the most popular paths for Turkish investors seeking to establish a U.S. business. Franchises offer a proven business model, established brand recognition, and operational support — reducing the risk of starting a business from scratch. For Turkish investors pursuing an E-2 Treaty Investor Visa, a franchise investment can be an effective way to meet the E-2 investment requirements.

This guide explains the U.S. franchise regulatory framework, the key documents Turkish investors must review, and the due diligence process for evaluating a franchise opportunity.

At the federal level, franchising is regulated by the FTC Franchise Rule (16 C.F.R. Part 436), which requires franchisors to provide prospective franchisees with a Franchise Disclosure Document (FDD) at least 14 calendar days before the franchisee signs any agreement or pays any money.

The FTC Franchise Rule does not require franchisors to register with the FTC or obtain federal approval. It simply requires disclosure.

In addition to the federal FTC Franchise Rule, approximately 14 states have their own franchise registration laws that require franchisors to register their FDDs with the state before offering or selling franchises in that state. These "registration states" include:

• California
• Illinois
• Maryland
• Michigan
• Minnesota
• New York
• North Dakota
• Oregon
• Rhode Island
• South Dakota
• Virginia
• Washington
• Wisconsin
• Hawaii

Turkish investors considering franchises in registration states should verify that the franchisor's FDD is registered in the relevant state.

The FDD is the most important document in a franchise transaction. It contains 23 items of required disclosure:

Item 1: The Franchisor and Its Parents Background on the franchisor, its parents, predecessors, and affiliates.

Item 2: Business Experience Background on the franchisor's key executives.

Item 3: Litigation Pending and prior litigation involving the franchisor and its key executives. This is one of the most important items — a history of litigation with franchisees is a red flag.

Item 4: Bankruptcy Bankruptcy history of the franchisor and its key executives.

Item 5: Initial Fees The initial franchise fee and other fees paid before opening.

Item 6: Other Fees Ongoing fees, including royalties, marketing fees, and technology fees. These fees can significantly affect the profitability of the franchise.

Item 7: Estimated Initial Investment A table showing the estimated initial investment required to open the franchise, including:

• Initial franchise fee
• Real estate and leasehold improvements
• Equipment and fixtures
• Initial inventory
• Working capital
• Other costs

Item 8: Restrictions on Sources of Products and Services Required suppliers and any restrictions on purchasing from other sources.

Item 9: Franchisee's Obligations A table summarizing the franchisee's obligations under the franchise agreement.

Item 10: Financing Any financing offered by the franchisor.

Item 12: Territory The franchisee's exclusive or protected territory, if any.

Item 19: Financial Performance Representations (FPR) This is the most important item for evaluating the financial viability of the franchise. Franchisors are not required to make financial performance representations, but if they do, the representations must be included in Item 19.

Item 20: Outlets and Franchisee Information A list of current and former franchisees, including contact information. Turkish investors should contact current and former franchisees to get their perspective on the franchise system.

Item 21: Financial Statements The franchisor's audited financial statements for the prior 3 years.

1. Review Item 19 carefully: If the franchisor has made financial performance representations, analyze them carefully. Understand the assumptions underlying the representations and how they compare to your specific location and market.

2. Contact current and former franchisees: The most valuable information about a franchise system comes from current and former franchisees. Ask about:

   • Actual revenues and profitability
   • Franchisor support and responsiveness
   • Reasons for leaving the system (for former franchisees)
   • Whether they would buy the franchise again

3. Analyze the total investment: Review Item 7 carefully and ensure you have sufficient capital to cover the total investment, including working capital for the first 6–12 months of operation.

4. Understand the ongoing fee structure: Royalties and marketing fees can significantly affect profitability. Model the impact of these fees on your projected financials.

1. Review the franchise agreement: The franchise agreement is the binding contract between the franchisor and franchisee. Key provisions include:

   • Term and renewal rights
   • Territory rights
   • Transfer rights (important for E-2 visa holders who may want to sell)
   • Termination rights (both parties)
   • Post-termination obligations (noncompete, non-solicitation)

2. Review the lease: If the franchise requires a retail location, review the lease carefully. Key provisions include:

   • Term and renewal options
   • Rent and rent escalation
   • Assignment rights (important if you want to sell the franchise)
   • Personal guarantee requirements

3. Engage franchise counsel: Franchise agreements are complex and heavily favor the franchisor. Engage U.S. franchise counsel to review the agreement and negotiate modifications.

For Turkish investors pursuing an E-2 Treaty Investor Visa, a franchise investment can be an effective way to meet the E-2 requirements.

• Substantial investment: The investment must be "substantial" — there is no fixed minimum, but USCIS typically expects at least $100,000–$150,000 for a franchise investment
• At-risk investment: The investment must be "at risk" — the investor must have actually invested the funds, not merely committed to invest
• Non-marginal enterprise: The franchise must generate more than enough income to support the investor and family
• Active management: The investor must be coming to the United States to develop and direct the franchise

Turkish investors can structure their franchise investment for E-2 purposes in several ways:

• Single-unit franchise: Purchasing a single franchise unit
• Multi-unit franchise: Purchasing the rights to develop multiple franchise units in a territory
• Area development agreement: Purchasing the rights to develop a specified number of units in a territory over a specified period

Multi-unit and area development agreements typically require larger investments, which can strengthen the E-2 application.

Turkish investors have been active in a variety of U.S. franchise categories:

• Food and beverage: Fast food, fast casual, coffee shops, bakeries
• Fitness and wellness: Gyms, yoga studios, personal training
• Home services: Cleaning, landscaping, pest control, HVAC
• Business services: Staffing, printing, shipping, tax preparation
• Education: Tutoring, test preparation, early childhood education
• Healthcare: Home health, senior care, dental

1. Work with a franchise broker: A reputable franchise broker can help you identify franchise opportunities that match your investment budget, skills, and goals.

2. Engage franchise counsel before signing: Never sign a franchise agreement without having it reviewed by U.S. franchise counsel.

3. Contact multiple franchisees: Talk to at least 10–15 current and former franchisees before making a decision.

4. Model the financials conservatively: Use conservative assumptions when modeling the financial projections for the franchise.

5. Plan for the E-2 visa from day one: If you are pursuing an E-2 visa, structure the franchise investment to meet E-2 requirements from the beginning.

Buying a U.S. franchise can be an excellent path for Turkish investors seeking to establish a U.S. business. The franchise model offers a proven business system and operational support, reducing the risk of starting from scratch. With proper due diligence and experienced legal counsel, Turkish investors can identify and evaluate franchise opportunities that meet their investment goals and immigration needs.

ULF New York advises Turkish investors on franchise due diligence, franchise agreement review, E-2 visa structuring, and U.S. business establishment. Contact us to discuss your franchise investment plans.

This article is for informational purposes only and does not constitute legal advice. Franchise law varies by state; consult qualified franchise counsel for advice specific to your situation.