Franchise Law

Many people come out of a corporate environment with a severance payment and look for a business that they can invest in.

If they were in middle management, they may feel that they know what they are doing in picking up a franchise opportunity.

That being said, it is still a good idea to hire a franchise lawyer to assist you in reviewing the documents, which can include the offering circular, franchise agreement and lease or purchase of the property where the franchise may be located.

One may think that every franchise has a successful formula, but that is not the case. In various studies on franchises in the late 1990's, the study found that five years after their start, 62 percent of the franchise firms were still in business, compared with 68 percent of the independent companies reviewed in the study.

Although the good franchisors have corrected most of their business mistakes before franchising the business, which lowers the business risk, it is apparent by these numbers that your due diligence is critical to your successful purchase and long-term operation of the right franchise for you.

Although the provisions of the franchise agreements favor the franchisor, there have been new rules from the Federal Trade Commission that may help alter the balance toward the franchisee.

These rules take effect on a voluntary basis July 1, 2007 and will become mandatory July 1, 2008.

One of the changes is that the franchisor must disclose all lawsuits that were filed against their franchisees. They must also detail any bankruptcy filing by any of the franchisor's parent companies.

Another rule requires the franchisor to state whether they are selling product directly through an alternative channel like the Internet, which may hurt sales in the franchise location you are contemplating.

Another positive change for the prospective franchisee is that the franchisor will be required to disclose if they have confidentiality agreements with current or former franchisees which would prevent them from speaking candidly about their experience with the franchisor.

This is an important part of the due diligence in purchasing a franchise, as the current or former franchisees can provide a wealth of information about the training program, the involvement of the franchisor in the day to day activities of the franchisee, the advertising program, the capital improvement program and how much competition you may have with holders of adjacent territories,.

There are also new rules to make available more information to determine how frequently franchises were terminated, sold or transferred - also a good indicator of stability of the investment in that franchise.

Even with this knowledge, it is still important to review this information and digest it with your attorney to allow you to make the right decision.

If you do your homework properly, you will have the information you need from the franchisor to digest and make an informed decision. Then, you will be more likely to be in the 62 percent of franchise businesses that are still in business after five years.

(ArticlesBase SC #545454)

Denice Gierach

Setting up your own franchise can be an exciting process, but it can be overwhelming and complicated too. Consequently, if you aren't as gifted in legal matters as you are in entrepreneurship, you probably should hire a franchise lawyer to help you get things going.

Even if your business is doing well enough that you are tempted to make it a franchise, there are a lot of things that need to happen before the change is complete. As you prepare to expand, hire more people, serve more customers and earn royalties, there is a lot of legal footwork to take care of first.

For example, you will need to know state laws, international laws and real estate laws before you can expand into new areas. There are also specific laws that regulate the sale and management of franchises.

If you aren't familiar with all these laws, you could make serious mistakes that end with the loss of your business. To prevent this outcome, you just need to work with someone who can guide you through all the legal hoops.

It will also be important to hire a franchise lawyer as you negotiate royalties, accounting rules and company standards with franchisees. After all, as they become small business owners who manage branches of your franchises, their management and performance will affect public perception on the entire company name. When negotiations are complete, it will be imperative to make those agreements legally secure as well.

After your franchise is developed, situated, managed and registered correctly, a franchise lawyer can also protect your business as it functions over the years. Then, if accidents or other events bring law suits against your franchise, it will be comforting and helpful to know that you have a professional working to protect your business.

The very nature of franchises makes them susceptible to legal challenges. They go to many areas, they serve and employ a lot of people, and they require strong central support and guidance. Whether you are setting up a new franchise or protecting an investment that you have already established, a franchise lawyer can provide you with invaluable knowledge, experience and service.

As you look for the right franchise lawyer, chose an individual who has had a lot of experience in every area of franchise law. Good places to look for talented lawyers are law conventions and forums. The speakers will often be successful practicing lawyers who are so well known for their expertise that they have been recruited to teach their skills to others.

(ArticlesBase SC #379039)