3 Things a Franchise Lawyer Can Do For a Franchisee

April 27, 2015

Purchasing a franchise blends together several complex and regulated areas of life: investment, business and law.

Case and point, you invest a sizeable initial amount into a business through a very binding and structured legal agreement.

To say this is a complicated transaction is an understatement. To add to the complexity is that it is a very delicate balance of the three. And, while a franchise can be a very profitable investment, the balance isn’t always structured in your favor.

That’s where a franchise lawyer comes in.

FDD Review

Standard Franchise Disclosure Documents (FDDs) are over 200 pages long. This comprehensive document has very specific financial and legal terms. All of which are binding. It was designed to accomplish two things: 

  • Disclose detailed information about the health and state of the franchise to prospective buyers;
  • Outline mandatory terms and conditions, particularly around fees and royalties, expected of the franchisee. 

In short, this is a complex yet extremely important document. When signed, this document will dictate a large percentage of your interaction with the franchisor.

To an untrained eye, discrepancies or irregularities could easily be overlooked. This is where a franchise lawyer becomes your invaluable partner. Not only will they help protect your interests, they will also ensure you understand terms, conditions and potential consequences.

The FDD Review will include:

  • Evaluating the legality of the clauses in your state;
  • Categorizing clauses as either standard, unusual or causes concern;
  • Identifying status of registrations and trademarks; 
  • Addressing any discrepancies.

Business Entity Formation

I strongly encourage franchisees to form a business entity when purchasing a franchise. Business entity formation isn’t one size fits all. There are several different options:

  • Sole Proprietorship
  • Partnership
  • LLC
  • Business Corporations

The type of entity you need will be based on your personal situation and type of franchise. An experienced franchise lawyer will be able to navigate this process, helping fit it to your needs. 

Lease Review

If your new franchise is a brick and mortar business, there is a high probability the franchisor will have very specific stipulations for both the type of location and clauses the franchisor will demand be placed within the lease.

Commercial leases differ from residential leases.  And as terms in your lease can directly impact the success of your business, it’s essential to ensure everything is buttoned up correctly.  Most importantly, when you are considering selling your franchise the value of your franchise business is directly related to the terms contained in your lease agreement.

Conclusion

The key to successfully and efficiently navigating the franchise space is partnering with a good lawyer.  More specifically, you want someone who specializes in franchise law. By being active in the franchise space, they will have a good understanding of what is happening in the ever-changing industry. 

If you are thinking about franchising, contact me today. Together we can work to ensure that your venture into the franchising realm is a profitable one.