Buying a US Franchise: Check Licences and Permits

Buying a franchise gives you contractual permission to use a brand and its business system. It does not automatically give you legal permission to provide every service that brand offers. Across the United States, licensing requirements can differ by activity, state and locality. Before joining a franchise community, establish which approvals your business needs, who must hold them and whether you can realistically obtain them.

1. Separate brand permission from government approval

Start with the exact activities you intend to carry out, rather than the brand’s broad description. A home-services franchise might undertake work requiring a contractor’s licence. A care business may face different requirements depending on whether it provides companionship, personal care or clinical services. Food businesses commonly need health-related approvals, while alcohol sales involve separate licensing.

The US Small Business Administration advises buyers to identify the federal, state and local licences and permits needed to operate. Do not assume an existing franchisee’s permissions, or the franchisor’s own credentials, cover your business.

Create an approval register with these columns:

• Activity: the specific service or product being offered.
• Authority: the government agency or professional board responsible.
• Holder: the company, individual professional or other person who must qualify.
• Requirements: applications, examinations, experience, inspections, insurance or bonds.
• Timing: when approval is required and how renewal works.

Check requirements directly with the relevant authorities. The franchisor’s checklist is useful, but it should be a starting point rather than your only evidence.

2. Read the FDD for regulatory responsibilities

US franchising is specifically regulated. The Federal Trade Commission’s Franchise Rule requires covered franchisors to provide a Franchise Disclosure Document, or FDD, at least 14 calendar days before a prospective franchisee signs a binding agreement with, or pays money to, the franchisor or an affiliate in connection with the proposed franchise sale.

Item 1 of the FDD includes disclosure about laws and regulations specific to the business being offered. Use this to identify issues for investigation, not as a complete licensing opinion for your address and service mix.

Ask the franchisor:

• Which permissions must be in place before opening?
• Which approvals must the franchisee obtain independently?
• Does any promised application assistance appear in the agreement?
• Have applicants encountered qualification barriers in your intended state?
• Can the proposed services legally be delivered through your intended ownership structure?

Some states also impose franchise registration or additional disclosure requirements. Those rules govern the franchise offer or sale; they do not replace operational licensing. Registration of an FDD is not an operating licence or a government endorsement of the investment.

Have a US franchise lawyer identify the applicable franchise rules, and involve a lawyer familiar with the regulated activity where necessary.

3. Check who must qualify — and remain qualified

A business may need more than a licence issued in its company name. Depending on the activity and jurisdiction, an owner, manager, supervising professional or designated qualifying individual may need particular credentials.

This distinction matters when choosing a brand. Training from the franchisor does not necessarily satisfy statutory education, experience or examination requirements. Nor does employing a licensed person always make the proposed ownership and management arrangement lawful.

Before committing, obtain answers to three practical questions:

Can you qualify? Check whether your experience and credentials meet the relevant authority’s requirements. Do not assume that a licence from another state will be recognised automatically.

Can your proposed staffing model qualify? Establish any supervision, availability or employment requirements for the credential-holder. Test whether the necessary salary and recruitment lead time fit your plan.

What happens if that person leaves? Ask the authority about notification requirements, replacement deadlines and whether trading must stop. Build a lawful continuity plan rather than relying on one person’s informal promise to remain.

For an existing outlet, verify each approval’s status and whether a change of ownership requires consent, a new application or another inspection. A seller’s current licence is not proof that you can operate after completion.

4. Allocate the risk before signing

Ask your lawyer to compare the approval timetable with contractual opening deadlines. An application in progress may not excuse late opening or prevent fees becoming payable.

Identify who bears application costs, inspection-related changes, required insurance and any licensing-related delay. Ask what happens to payments already made if approval is refused. Do not assume there is an automatic refund or cancellation right.

Where possible, negotiate written conditions addressing essential approvals, realistic deadlines and the consequences of refusal. Record responsibilities clearly: who prepares applications, supplies supporting information and responds to the authority?

Practical takeaway: Before buying, confirm the permissions, the qualified people and the contractual consequences of delay. Proceed only when your proposed business can lawfully deliver the services on which your investment depends.