December 16, 2016
It’s hard to consider certain possibilities in our life. Whether it’s creating a will, designing an exit plan, or getting affairs in order, people naturally stray away from activities that have to do with their potential demise or disability in the future. I admit planning for the possible early end to your life is never an ideal prospect.
Despite how challenging it may be, it’s essential to ensure that your family and business are taken care of. That’s why every franchisee needs to take steps to address what should happen in the event of death or disability.
Many franchise agreements state that the estate has a period of time to establish an operator and develop a long-term plan for moving forward. This can either be a family member who wants to assume the role or hiring a manager to assume the role. Typically, this is broken into two phases: the short-term management and long-term plan if the family wishes to keep the business.
It’s important to establish and train individuals in your franchise unit who can step to the helm if something should happen to you. Additionally, you need to determine if there are in fact family members who would run the business long term in your absence, or if you should instruct the estate to sell the unit upon your passing.
The franchisor typically will give your family about six months to address these issues However, should the business start to falter, most franchise agreements give the franchisor the ability to step in and assign a manger with a management fee or potentially take steps to terminate the agreement.
When addressing long-term disability, it’s important to address two different aspects. Physical disability and cognitive disability create two different scenarios for the franchise moving forward.
Similar to addressing the death of a franchisee, in the event of cognitive disability, the franchisor typically outlines a specific length of time for the franchisee or their estate to appoint a general manager or make the decision to sell. Some FDDs are more detailed about the specific steps, as well as the costs should the franchisor need to step in and assign a manager.
No matter which situation leads to a new manager stepping in, death or disability, the franchisor will want the new person in charge to have been trained and be competent to assume the role. Most times the franchisor will need to approve the franchisee leadership.
Short-term disability is by far the best of the scenarios to plan for. Having a well-trained team ready to run the business while you recover is the best option. Should one of your team members be unable to step up, identify a friend or family member who might be able to run the business temporarily.
Next to ensuring you have a line of succession within your management team, as well as qualified mangers to step in if necessary, you need to have a will and trust to outline your specific wishes in the event of death or extreme long-term disability.
Going through this process prompts franchisees to address the many “what ifs” that we as optimists tend to avoid. Who can step into your shoes? Are there family members or employees who would want to take over? Once identifying who those people would be, it’s important to make sure they are trained and capable to take over if necessary.
In addition to bringing about the questions, wills and trusts serve an important role in giving your estate the ability to access corporate documents or business accounts. I advise franchisees to set their business up in a LLC or as a Corporation. This means there are limitations on who has the ability to access business files and funds. Not having a will established most likely means the affair transitions to probate, which is an expensive, timely, and messy process. It’s hard for the business to succeed while the estate works through probate. There is no guaranteeing that the franchisor will want to wait through that entire process before stepping in either.
Should you desire that the business be sold, you can dictate that the proceeds go to your estate.
When opening a franchise unit, there are several important legal measures you need to take to ensure you protect your investment and build a solid foundation to grow your business. From reviewing the FDD to setting up your legal entity to reviewing contracts to helping you establish a will or trust, consider partnering with us at Soden and Steinberger. As an experienced franchise lawyer and a co-owner in a franchise, I bring a unique advantage to set up your business.