Can You Own a Franchise if You Have a Felony on Your Record?

In most cases there is nothing in federal or state law that prevents a felon from owning a business or franchise. However, a felony conviction could derail some franchise applications depending on the kind of business, its licensing requirements and credit rating. Some conduct criminal background checks and make decisions based on the results. Others follow government guidelines on employment discrimination based on criminal background.

Companies that sell franchise opportunities, called franchisors, evaluate potential franchisees primarily by creditworthiness. They require business knowledge, start-up experience and qualities that can help ensure success, making credit and financial checks likely. However, criminal background checks are also possible, especially if the company requires background checks on employees. There is often competition for a franchise and the franchisor could use a criminal background as a deciding factor. If a franchise application asks about your criminal background and you fail to disclose it, a background check could raise questions about your character and honesty.

Federal equal employment opportunity regulations prevent discrimination when similar criminal histories are compared. However, they do not keep employers from using criminal history as part of decision making. While these laws don’t apply to franchisors, businesses usually observe federal hiring standards, including when considering franchisee applications.

A felony conviction can affect the ability to be licensed and bonded. Surety bonds are special insurance policies that protect customers. They are common with contractors, plumbers, mortgage providers and auto dealers and can be required in some states. Some businesses are also required to be licensed. Day-care operators, banks, and liquor stores may have state requirements on licensing that may take a felony conviction into account. For example, a bank fraud felony may prevent someone from opening a financial investment service, but not a flower shop or bakery.

Franchise brokers match people with opportunities. You can meet franchisors at a franchise exposition and learn more about their requirements. A felon who is buying a franchise receives a copy of the franchise disclosure document, which includes a requirement to reveal whether the chief executive or other officers have felony convictions.

Felonies can affect your credit rating, making it difficult to get financing and to fund bonding. A poor credit history could also affect the franchisor decision if you're in competition with other interested buyers. The Small Business Administration’s Surety Bond Guarantee program can help small businesses get bonded, especially small businesses with credit issues.