LEGAL SERVICES FOR FRANCHISEES
I provide legal services to franchisees of all sizes, ranging from new franchisees about to sign their first franchise agreements, to experienced multi-unit developers or master franchisees. I help franchisees with their legal rights and obligations under franchise agreements and other agreements that affect their businesses.
I provide legal services to franchisees by:
FAQS FOR FRANCHISEES
What should we do before buying a franchise?
- Make sure franchising is right for you
- Research the franchise you are considering
- Compare competing franchises
- Consult an experienced franchise lawyer
- Get all important promises in writing
What should we do to make sure franchising is right for us?
First, learn all you can about franchising, and the characteristics of successful franchisees. Then, honestly evaluate your own personal strengths and weaknesses to see how they match up with the requirements for franchising. Some of the web sites listed in a later FAQ include excellent resources for determining whether franchising is right for you.
How can we research the franchise we are considering?
There are a number of sources for information on the franchisor and the franchise offering.
1. UFOC. Contact the franchisor and request a copy of its franchise offering circular, commonly called a "UFOC." Study the UFOC, the proposed franchise agreement (included in the UFOC) and any other proposed contracts included in the UFOC. Make sure you understand everything. (An experienced franchise lawyer can help you.)
2. Current Franchisees. The UFOC should include a list of current franchisees. Contact as many as you can, and ask them all about the franchise. (Some of the web sites listed below even suggest what to ask.) Arrange to spend some time at a franchised unit to get a feel for the day-to-day operations of the business.
3. Former Franchisees. The UFOC should also include a list of franchisees who left the system within the last year. Contact these former franchisees and find out about their experiences.
4. State Franchise Regulators. If you are in a state with franchise registration requirements, the state franchise regulators can tell you whether the franchisor is in good standing in that state. They may also be able to tell you whether there are any pending complaints against the franchisor.
5. Franchise Brokers. If you are using a franchise broker, they can also help you research franchisors. But, keep in mind that franchise brokers work for the franchisors (and not for you).
6. SEC. If the francisor is a publicly-traded company, it is required to file certain information with the U.S. Securities and Exchange Commission. These filings are available online at www.edgar.gov.
7. Books. There are several good books that provide basic information about franchise systems.
- Bond's Franchise Guide provides detailed profiles on over 1,000 North American franchisors in 45 different industry categories. (US$29.95) Click here to purchase online from the publisher.
- Bond's Top 50 Series (three separate books) provides in-depth analysis of the 50 top franchises in each of the food-service industry, the service-based industry, and the retail industry. (US$19.95) Click here to purchase from the publisher.
- International Herald Tribune International Franchise Guide (2nd Edition) includes profiles on a broad range of international franchisors. (US$29.95) Click here to purchase from the publisher.
- Franchise Opportunities Handbook, (1998) published by the U.S. Department of Commerce, describes more than 1,500 franchise opportunities. (US$16.95)
8. Internet. The Internet can be a gold mine for people searching for information about buying a franchise. But, always be sure to consider the source. Some web sites make money by selling listings to franchisors. See the FAQ below about additional sources for online information.
What are franchise brokers?
Franchise brokers are the franchise world’s equivalent of real estate agents. They help match franchisors (sellers of franchises) with qualified franchisee prospects (buyers of franchises). The work for the franchisors, and are paid by the franchisors. They have relationships with certain franchisors, so they will attempt to steer you to one of their franchisors.
Examples of franchise brokers include (click on links for more information):
How can we compare competing franchise systems?
Find out who the competing franchise systems are, and get basic information about the competitors by using the books mentioned in a previous FAQ and/or online resources. If some of these competitors look interesting, contact them to request a copy of their UFOC. Then, compare the important information about the competing systems to see which looks like the best value for the investment. Overview information allowing a comparison of many franchise systems is available at Entrepreneur magazine's online Franchise Zone.
Where else can we get a company's UFOC?
Two service companies collect and sell copies of franchise offering circulars. You can obtain UFOCs directly from FRANDATA Corporation (phone 202-336-7632; generally US$2 per page) or FranchiseHelp, Inc. (phone 914-347-6735; generally US$190 for a complete UFOC and exhibits).
Another source of UFOCs for franchisors registered in California is the California Department of Corporation's Cal-EASI free online database of franchise registrations since 2003.
How can we find out how much we can make with different franchises?
A franchisor is not required to provide prospective franchisees with financial information about actual or potential sales, costs, income or profits of the franchised business. If the franchisor chooses to provide this kind of information, the information must be stated in full in Item 19 of the UFOC. This information (called an "earnings claim") must include a description of the factual basis for the information, and a description of all material assumptions. If the UFOC for the franchise you are considering includes an earnings claim, make sure you study and understand all of the footnotes to the financial information.
If the UFOC does not include earnings information, there are 2 primary sources for financial information:
- Current and former franchisees; and
- A book entitled "How Much Can I Make?", which includes earnings claims for about 150 different franchises in about 30 different industries. (US$29.95) Click here to purchase from the publisher.
Why should we consult a lawyer before signing the franchise agreement?
The franchise agreement is a binding legal document that represents the framework for a legal relationship between a franchisor and franchisee that is intended to last for many years. This agreement often requires the payment of a substantial up-front fee, which is usually not refundable. The franchise agreement usually cannot be easily terminated by the franchisee. It may impose liquidated damages or other types of "penalties" if the franchisee tries to terminate it. The franchise agreement is a serious commitment. It is very important for you to fully understand the franchise agreement BEFORE signing it. An experienced franchise lawyer can help you with this. Additionally, a newer or smaller franchisor may be willing to negotiate with a prospective franchisee – and a lawyer can help do this.
What other kinds of agreements are commonly involved in franchising?
Every franchise involves a franchise agreement (sometimes called a "license agreement"). Your franchisor may also require you to sign additional contracts, such as: a confidentiality agreement, a non-competition agreement, a software license agreement, a power of attorney, an assignment of telephone numbers, and other contracts. Sometimes, these kinds of provisions are all included in the franchise agreement. If you set up an entity (like a limited liability company or a corporation) to serve as the franchisee, the franchisor will usually require the owners of the entity to sign confidentiality and non-competition agreements. The owners of the franchisee entity may also have to personally guarantee the franchisee’s performance of the franchise agreement.
Why do we need to get all important promises in writing?
The franchise agreement probably contains a provision (called a merger clause) that says that only the terms of the written contract are binding, and that any verbal promises or representations are not binding. If a franchisor makes a verbal promise to you that is not in the franchise agreement, and that promise is a major factor in your decision to buy a franchise, then you need to get the promise in writing (preferably, as an addendum to the franchise agreement) or else the promise will probably not be enforceable.
Where can we get more information online?
Federal Trade Commission -- has some information for franchisees on its web site.
Small Business Administration -- SBA’s online workshop about buying a franchise.
FoodFranchise.com -- bills itself as "the web’s most comprehensive online resource for the food franchise industry;" organized by sector and initial investment.
Bison.com -- basic listings on over 1,300 franchises; featured listings on more than 200 franchises.
OwnYourOwnFranchise.com -- includes franchise sales information for more than 20 franchisors.
FranChoice -- includes a franchise aptitude test.
Army Times -- has a wealth of information for would-be franchisees, including listings of hundreds of franchise opportunities, articles and tips on buying a franchise, a glossary of franchise terms, a list of recommended books on franchising, and interviews with franchisees.
Wall Street Journal -- even-handed articles about franchising and certain franchised businesses. Most articles are for people considering buying a franchise. This site also has franchise sales information for more than 20 franchisors.
Be The Boss -- billed as "The Virtual Franchise Expo;" includes franchise sales information for more than 100 franchisors. Click on the "franchising" link for lots of helpful information on how to chose a franchise system, and how to investigate the opportunity before you buy.
FranchisingAmerica.com -- "Extensive profiles on over 1,200 franchisors"
Inc. Magazine -- includes articles on buying a franchise.
World Franchising -- offeris free online courses on various franchising topics primarily focusing how to choose a franchise opportunity.
FranNet -- claims to be "the world's largest network of franchise consultants." Click on the "Research" link for many different resource materials and articles by FranNet associates.
What other legal services do new franchisees typically need?
Many franchisees seek to reduce their personal liability by owning and operating their franchise through a legal entity, such as a limited liability company or a corporation. An experienced franchise lawyer can discuss with you the pros and cons of operating a franchise through an entity, help you decide what type of entity might be well-suited for your particular situation, and form the entity for you.
The normal process of setting up and operating your franchise will probably result in the need for you to enter into agreements with others, such as premises leases, equipment leases, service contracts, and supply contracts. An experienced franchise lawyer can review the proposed agreements for you, and help you understand them.
Can you really work effectively with us from a distance?
Yes. As a result of technology, I can provide you with superior-quality legal services regardless of where you are located. Computers, fax machines, cell phones, and e-mail have changed the way legal services are provided. It is no longer necessary for lawyers and clients to meet in person and review documents across a conference table. I provide legal services to clients in various parts of the world without leaving my office.
I usually do not represent franchisees. This is because of 2 main factors. First, the non-franchise legal services you will likely need (such as formation of a new entity and review of your lease) are best performed by a lawyer licensed in your state. It probably makes sense for you to establish an attorney-client relationship with a local franchise lawyer who can help you with the franchise agreement and these other non-franchise legal services. Second, most prospective franchisees balk at my fees. I am usually quite busy with long-term franchisor clients, and a detailed review and report on a franchise agreement and UFOC takes a substantial amount of time, so I am unable to lower my fees.
How much do your services cost?
