Handling All Aspects Of Franchise Law
Franchise businesses provide a proven operating model but also present a wide array of challenges, both legally and financially. Understanding the additional liabilities and inflexibilities imposed as a result of operating within the confines of an established franchise system is not an easy task. Having an adviser who can provide insight into the pros and cons of a franchise system can be invaluable and often help avoid costly mistakes.
The benefits and liabilities associated with a particular franchise may vary drastically from one franchise to another. Hunt Pennington Kumar PLLC evaluates the pros and cons of the franchise opportunity based on the client’s personal situation and goals. This helps our clients make informed decisions and understand the consequences associated with the various clauses in a franchise agreement. As a result, it protects the client’s interests, reduces risk and liability, and provides an opportunity to mitigate some of those risks while adhering to the constraints imposed by the franchise agreement.
Starting A Franchise Business: What To Know
A franchise business is often perceived as a way to reduce the investment risk associated with a new business because the franchisee can generally use an already proven system and has support and training through the franchisor. However, understanding the franchise agreement as well as the risks associated with the various obligations imposed by the franchisor can be a daunting task. According to the Federal Trade Commission, a franchisor is required to issue a franchise disclosure document to the prospective franchisee. This document gives the prospective franchisee detailed information about the business including finances, litigation history, initial and ongoing fees, restrictions and potential earnings. As a prospective franchisee, it is imperative that you hire an experienced attorney to thoroughly review and analyze the disclosure document.
In order to become a franchise, you will need to enter into an agreement with the franchisor. A franchise agreement is often incredibly detailed and includes binding terms on fees, royalty payments, site’s location, operations, marketing and sales. It also includes numerous restrictions that are imposed on a franchisee by the franchisor to protect the franchise brand and allow for a standard system to operate the franchise locations. There may be multiple agreements that may need to be reviewed and executed carefully, especially if you are considering the purchase of multiple units. These contracts can be overwhelming and complex for a person to review and understand on their own.
You can count on our team to help you understand the terms, long-term consequences and liabilities you undertake when you sign the franchisee agreement.
Helping You Establish Successful Franchise Operations
Franchise operations involve all the normal tasks associated with running a business, and in addition, there is a need to manage the relationship with the franchisor and be compliant with the franchisor’s requirements. Since the franchisor wants to see the brand continue to succeed and has to provide a standard look and feel, consistency of products and services across multiple franchise locations, a franchisor has to 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 often necessary. Often legal issues such as negotiating contracts with vendors and suppliers, negotiating leases with the landlord, legal documents involved in the purchase of products and services, issues with employee and contractor, customer complaints, and adherence to regulatory and government rules crop up while operating a franchise business.
Our firm can help you navigate the legal minefield so you can focus on operating and growing your business. By planning for these issues in advance in partnership with an experienced lawyer, you can avoid and mitigate risks associated with operating your franchise.
Selling A Franchise Business Smoothly
Almost all franchise agreements impose certain restrictions when it comes to the franchisee selling an existing franchise location. The franchisor requires that the franchisee need to obtain written consent from the franchisor prior to the transfer or sale of a franchise. A purchaser’s financial situation is generally a threshold issue for the franchisor to find the prospective purchaser to be a qualified purchaser or transferee. In addition, such approval is contingent upon a number of additional factors such as transfer fee, completion of training by transferee/purchaser, upgrade of the facility to new franchisor standards and prospective transferee/purchaser executing the then-current franchise agreement instead of the version signed originally by the original franchisee.
Furthermore, the transaction generally may include a letter of intent, a buy-sell agreement, disclosure documents and financial reports. It is essential that you consult an attorney experienced with such transactions to ensure that the transaction proceeds smoothly and your interests are adequately protected.
Ask A Lawyer About Franchise Law
No matter whether you are buying your first franchise or you own multiple units, you need an experienced attorney on your side who can protect your interest and your assets. Get in touch with us today to have a business law adviser on your side. Call 512-768-9337 or send us an email to request a free initial consultation.