When considering entering into a franchise agreement, the question often arises: “Do I need to use a franchise attorney?” The answer is a resounding yes, and in this article, you learn why consulting a franchise attorney is essential if you are looking to venture into the world of franchising.
An Overview of Franchising
The concept of franchising dates back to the 18th century, when Benjamin Franklin established one of the earliest known examples of a franchise network. Over the years, franchising has evolved into a tried and true business model, offering numerous advantages for franchisees and franchisors.
However, at its core, franchising involves a legal agreement that governs the relationship between the parties involved. This agreement, often comprised of complex legal documents, must be thoroughly understood to ensure you are making an informed decision.
Reason to Consult With a Franchise Attorney
You want a leading franchise dispute attorney to assist you in reviewing the complex legal documents associated with franchising. The Federal Trade Commission (FTC) has established rules regarding pre-sale disclosures to protect potential franchisees from unscrupulous practices. These rules, known as the Franchise Rule, require franchisors to provide potential franchisees with a Franchise Disclosure Document (FDD) at least 14 days before they sign a franchise agreement or pay any money to the franchisor.
The FDD must contain 23 specific items of information about the franchise, including:
- The franchisor’s business experience
- The financial performance of the franchise system
- The obligations of the franchisee
- The terms of the franchise agreement
- Any pending litigation against the franchisor
The FDD also includes exhibits, such as a list of current and former franchisees and audited financial statements of the franchisor.
Franchisors may sometimes claim their franchise agreement is non-negotiable, but this is not always true. A skilled franchise attorney can negotiate with the franchisor on your behalf, striving to improve the agreement in your favour. A franchise agreement should be a mutually beneficial relationship between the franchisee and the franchisor, and a franchise attorney plays a key role in safeguarding your interests.
When It’s Imperative to Engage a Franchise Attorney
The critical instances when engaging a franchise attorney becomes imperative include the following:
Buying a Franchise
When considering buying a franchise, a franchise attorney will carefully review the franchise disclosure document and agreement to ensure compliance with federal and state laws governing franchises.
This will give you a comprehensive understanding of your rights as a franchisee, including how the agreement may impact your business during operations and in the future. Furthermore, a franchise attorney can provide valuable insights and recommendations to strengthen the agreement in your favor during negotiations with the franchisor.
Selling a Franchise
If you are a franchisee looking to sell your business, the transfer of ownership is typically governed by the Franchise Agreement. Franchisors often play a significant role in the sale process, sometimes leading to conflicts of interest. A franchise attorney can advocate on your behalf, resolving any disputes arising during the sale and protecting your interests.
When There is a Dispute
Despite the best intentions, disagreements can occur between franchisors and franchisees during their business relationship. These conflicts may range from financial to operational issues, potentially leading to legal disputes. A franchise attorney can evaluate the strength of your case, explore possible solutions, and provide guidance on likely outcomes, allowing you to make informed decisions.
To Negotiate The Terms Of Your Franchise Agreement
The franchise agreement is the contract that governs your relationship with the franchisor. It’s important to negotiate the terms of the agreement carefully to ensure that you’re protected. A franchise attorney can help you negotiate the agreement’s terms and ensure you’re getting the best possible deal.
Franchising a Business
A franchise attorney can be pivotal in making this strategic decision for existing businesses looking to expand through franchising. They can provide valuable insights into the requirements of a successful franchise system, such as having a superior product or service, a teachable business system, and a duplicatable business concept. By engaging a franchise attorney, you can assess whether franchising aligns with your expansion goals and ensure a smooth transition into the franchise model.
To Help You Understand The FDD
The FDD is a legal document that must be provided to all potential franchisees by the franchisor. It contains a wealth of information about the franchisor, the franchise system, and the franchise agreement. However, the FDD can be complex and difficult to understand, even for experienced business people. A franchise attorney can help you understand the FDD and ensure the franchisor is not misleading.
Franchising can be an attractive option for entrepreneurs seeking to establish a new business or expand an existing one. However, it is not without its complexities and potential challenges. While successful franchises have flourished, not every franchise venture reaches the same level of success. The decision to enter into a franchise agreement should be approached with caution and the guidance of a competent franchise attorney. Your decision to use a franchise attorney can protect you from potential pitfalls, avoid unnecessary risks, and increase your chances of success.