Founding Attorney
Starting a franchise can be one of the most rewarding ways to own a business. You can gain access to an established brand, proven systems, and ongoing support. But franchising also comes with complex legal terms and obligations. Understanding the language of franchise law is the first step toward protecting your investment and ensuring a successful partnership.
At the Kumar Law Firm PLLC, we help business owners in Austin and throughout Texas make informed choices when buying, selling, or operating a franchise. Below is a straightforward guide to the key terms every franchise owner should know.
Franchise Agreement
The franchise agreement is the foundation of the franchisor-franchisee relationship. It is a legally binding contract that defines both parties’ rights and responsibilities.
Common topics include:
- Initial and ongoing fees
- Territorial rights
- Training and operational standards
- Renewal and termination conditions
Before signing, we carefully review each clause with our clients so they fully understand the scope of their obligations and what protections are available under Texas and/or federal law.
Franchise Disclosure Document (FDD)
Under the Federal Trade Commission’s Franchise Rule, franchisors must provide a Franchise Disclosure Document at least 14 days before any agreement is signed or money is exchanged.
The FDD contains at least 23 specific items, including details about:
- The franchisor’s business history and key executives
- Initial investment estimates
- Litigation and bankruptcy history
- Restrictions on goods and services
- Financial performance representations
We can help guide clients through each section to help identify potential red flags and assess whether the opportunity aligns with their goals and risk tolerance.
Royalty Fees and Other Payments
Most franchises require recurring royalty payments, often calculated as a percentage of monthly gross sales. Some also charge advertising, marketing, or technology fees.
These ongoing costs can significantly impact profitability. When reviewing agreements, we help clients understand not only how much they should expect to pay, but also what they are paying for, such as national marketing campaigns or software systems.
Territory and Exclusivity
Franchise territories define where you can operate and whether other franchisees can open locations nearby.
A clearly defined exclusive territory helps protect your customer base and investment. We analyze territorial clauses to ensure the boundaries are fair, enforceable, and aligned with your business plan.
Term and Renewal
Most franchise agreements last between 5 and 20 years. Renewal rights can vary, and some may require you to pay new fees or sign updated terms.
We help clients review renewal provisions so they can plan for long-term success and avoid surprises when it is time to extend the agreement.
Transfer and Exit Provisions
Life and business priorities change. That is why it is important to understand how you can sell, transfer, or close your franchise.
We review transfer restrictions, approval requirements, and resale conditions to make sure your exit options are realistic and legally sound.
Dispute Resolution
Many franchise agreements include mediation, arbitration, or litigation clauses specifying where and how disputes will be resolved.
Understanding these terms early helps you evaluate your leverage in the event that disagreements arise. We can counsel franchisees on how to protect their rights while maintaining productive business relationships. Franchise law is about more than contracts—it is about long-term relationships and protecting your investment.
Build Your Business on a Strong Legal Foundation
Franchise law blends federal requirements with Texas-specific principles. Knowing the terminology is only part of the process; interpreting what those terms mean for your unique situation is where legal guidance becomes valuable.
If you are considering investing in a franchise or need help reviewing your current agreement, we can provide the guidance you need. At the Kumar Law Firm PLLC, we help Texas business owners protect their interests and build strong foundations for growth. Contact us today to discuss your franchise goals and help ensure you are making informed, confident decisions.
Frequently Asked Questions About Franchise Law in Texas
What is the difference between a franchise and a license agreement?
A franchise includes the right to use a brand name and business system under specific controls set by the franchisor. A license agreement typically allows the use of intellectual property without the same operational oversight or fee structure.
Do franchise agreements have to comply with Texas law?
Yes. While federal law (the FTC Franchise Rule) governs disclosure requirements, Texas contract and business laws apply to the terms, enforcement, and disputes that arise from a franchise agreement.
Can I negotiate the terms of a franchise agreement?
Sometimes. While large or long-established franchisors may generally not be open to varying the terms of their standard contracts, you may be able to negotiate details like territory, renewal options, and transfer terms. We help clients identify where negotiation is possible and worthwhile.
How long does the franchise review process take?
The timeline depends on the complexity of your agreement and the number of revisions. Most reviews take one to two weeks.