Owning a business presents a wide array of challenges, both legally and financially. Buying, selling, or running a franchise can add another level of complexity as you must operate within the confines of an established franchise system. Having an adviser who can provide insight as to the impact of the various business benefits along with the constraints imposed by the franchisor in a franchise system can be invaluable and often help avoid costly mistakes. Our firm evaluates the pros and cons of the franchise opportunity based on the client’s personal situation and goals. This helps in structuring an agreement that protects client’s interests and reduces their risk and liability while still adhering to the legal and regulatory requirements and staying within constraints imposed by the franchise agreement.
Buying a Franchise
The purchase of a franchise is often perceived as a way to reduce the investment risk associated with a new business because the franchisee can use a format that already exists and has been successful. Although the investment risk may be reduced, the buying process of a franchise is incredibly complex. Upon applying to be considered for a franchise, the franchisor is required by the Federal Trade Commission to issue a Franchise Disclosure Document (FDD). This report provides the prospective franchisee with a detailed look into the business including finances, litigation history, initial and ongoing fees, restrictions, and potential earnings. If you are considering the purchase of a single unit or multiple units, it is essential that you thoroughly review the disclosure document and hire an experienced attorney who can also review and analyze the information presented. Prior to reviewing the document, our firm will take time to learn about your goals and concerns. Once we have assessed your needs, we will evaluate the FDD and help you to determine whether or not your goals can be met and your interests protected.
Should you decide to proceed with the purchase, upon approval from the franchisor, you will be asked to sign a Franchise Agreement. The Franchise Agreement is incredibly detailed and includes binding terms on fees, royalty payments, site location, operations, marketing, and sales. These contracts can be overwhelming and come with great restrictions and obligations for the franchisee. Our firm can help you understand the terms, long-term consequences, and liabilities you undertake when signing the document. We will work to ensure that your best interests are included in the agreement and may propose changes to the agreement to protect your investment.
Selling a Franchise
Most Franchise Agreements require that a franchisee receive written consent from the franchisor prior to the transfer or sale of a franchise. Generally, this will only be granted after a series of requirements imposed by the franchisor are met.
These vary from franchise to franchise but may include:
- Payment of transfer fee
- Approval of prospective franchisee by franchisor
- Completion of training
- Upgrade of facilities to meet new franchise standards
Our firm can ensure that you take all of the necessary steps to guarantee a successful sale of your franchise.
The relationship between the franchisee and the franchisor does not end once the sale is made final; in fact, the sale is just the beginning. Since the franchisor wants to see the brand continue to succeed, they will impose controls over the business, often regulating the appearance of the unit, services or products offered, and overall business operations. To ensure compliance, legal counsel is necessary. Our firm can assist you with legal issues arising out of the following matters:
- Purchase of products and services
- Franchise transfers
- Renewals and non-renewals
- Remodels and refurbishments
- Hours of operation
- Operating procedures
- Defaults and remedies
Whether you are just buying your first franchise or have owned multiple units for 30 years, you need an attorney who can protect your interests and your assets. Contact our business law firm today to make sure you have a valuable adviser on your side.