At the outset of our representation of new start-up franchisors, we assist clients in understanding the basic requirements for a successful franchise system. Throughout our representation, we endeavor to maximize the client's business objectives while eliminating or minimizing legal and business risks.
We offer 3 different fixed-fee packages for start-up franchisors.
1. Owner-Operator Package
This package is designed for franchisors who will offer single-unit opportunities. This is the most common type of franchise business model for start-up franchisors, which involves granting a franchise for one unit at a time to owner-operator franchisees.
2. Development Package
This package is designed for franchisors who will offer only development opportunities or who will offer both single unit and development opportunities. There are 2 alternative types of development opportunities covered by this package:
a. Area Development: Under an area development agreement, the area developer is given the right to own and operate more than 1 franchised unit within a specified geographical area. The area developer must own and operate these units itself. It has no rights to sub-franchise these units to others. Typically, all or part of the area development fee is applied as partial payment of the initial franchise fee under each of the separate franchise agreement signed later. The area development agreement usually provides for a certain schedule of new unit openings to make sure that the territory gets developed in a timely manner.
b. Regional Representative: Under a regional representative agreement, the franchisor subcontracts some of its support obligations in certain areas to regional representatives. For example, a regional representative may be responsible for recruiting qualified franchisee candidates, and for providing initial training and on-going support to franchisee in the region. In return, the regional representative may receive from the franchisor a portion of the initial franchise fees and ongoing royalties paid by franchisees in the region. Under this arrangement, the franchisor grants franchises directly to the franchisees; the regional representative has no rights to grant any franchises.
3. Master Franchise Package
This package is designed for franchisors who will offer master franchises (which is not recommended for use within the United States). Under a master franchise agreement, the franchisor grants a master franchise to a master franchisee, who then sub-franchises to the unit franchisees. Master franchising is normally the preferred method of international franchising, but it is not well-suited to the regulatory environment within the United States. If you are interested in master franchising in the U.S., please contact us to receive our master franchise package proposal. If you are interested in international master franchising, please see International Franchising.
Services Included in Fixed Fee Packages
1. Advice on Franchise System Structure
Vinson Franchise Law Firm will provide general consultation and specific recommendations regarding the structure of your new franchise system, such as regarding:
Territory rights and restrictions
Initial support you will provide
Training you will provide
Ongoing support you will provide
Other sources of revenue
Marketing requirements and restrictions
Protection of intellectual property
Term of agreement and renewal requirements
Dispute resolution procedures
2. Preparation of the Franchise Documentation
We will prepare the following custom-made documents (drafted to your satisfaction):
Franchise Disclosure Document (FDD) (formerly known as the Uniform Franchise Offering Circular or UFOC) appropriate for use in every state
State addenda to the FDD required by the laws of certain states
State addenda to the franchise agreement required by the laws of certain states
Owners agreement (by which individual owners of a franchisee entity become personally liable for the franchisee’s obligations)
Area development agreement or regional representation agreement (if the Development Package is selected)
3. Advice on Related Matters
We will provide you with specific advice and instructions on the additional items needed for your FDD, including the financial statements, sample contracts, and manual table of contents.
We will also offer advice and guidance on related matters, such as trademark registration and corporate structuring.
4. Education on Franchise Law Compliance We provide our start-up franchisor clients with our proprietary FAQ Memo containing more than 20 pages of advice and guidelines regarding:
Complying with federal and state franchise disclosure laws
Complying with state franchise registration laws
Complying with state franchise relationship laws
Strategies for avoiding legal problems with franchisees
Making and preserving proof of franchise sales compliance
THEN -- you are ready to begin offering and selling franchises in all of the non-registration states.
Each new franchisor's needs for state registrations are different. Some choose to offer and sell franchises in nly non-registration states at first. Some choose to register in all states right away. Most choose to register in a few states at first to test the market. The fixed-fee packages do not include any state registration services. These services are described below
How We Operate
After we are hired to represent a start-up franchisor, we will send to you a lengthy, detailed questionnaire form that is designed to obtain most of the information we need to get started on your legal documents.
Once we have received the completed questionnaire form, it generally takes us about a month to provide you with the initial draft of the FDD.
After you return your comments and questions on the FDD, we will prepare a second draft of the FDD and the initial draft of the franchise agreement.
Following your review and comment on the draft documents, we will produce as many additional drafts as necessary until you are satisfied.
With your cooperation, this entire process usually takes about 6 to 8 weeks (after you have returned the completed questionnaire form).
How We Charge for Our Services
Our fixed fee prices are:
US$19,500 for the Owner-Operator Package
US$21,500 for the Development Package
US$26,500 for the Master Franchise Package
Under any package, one-third of the fee is due upon engagement, one-third is due upon delivery of the first draft of the FDD and franchise agreement, and one-third is due upon completion of all documents to your reasonable satisfaction.
There are no additional fees or charges for any of the services described in the fixed-fee packages.
In certain circumstances, we are willing to share business risks with clients. This could mean allowing a client to defer payment for services to the future. Or, it could mean, taking a future income stream in your franchise system (such as a portion of initial franchise fees and royalties you receive in the future) instead of all or part of our normal fees. Or, it could mean taking stock or other ownership interest in your company instead of all or part of our normal fees. We are always open to new ideas to help clients manage their legal costs
What Is Not Included in Fixed-Fee Packages
The fixed-fee packages described above include all of the preliminary consultation and drafting of your initial set of franchise documents, and delivery of the FAQ Memo on franchise regulatory compliance. They do not include any additional legal services. For many clients, the fixed-fee packages described above are all that is needed to allow the new franchisor to begin offering and selling franchises in all of the (approximately 30) non-registration states. But, some clients may need additional legal services before they start offering and selling franchises.
Here is a menu of the additional services that might be necessary:
1. State Registrations
If you want to offer and sell franchises in any of the states in the US that require state registration of franchises or business opportunities (approximately 20 states), we will prepare and file the required forms for registration (or exemption) with applicable states.
State registration services are offered at a fixed fee of US$300 or US$600 or US$900 per state, depending on the state.
The US$300-states are Connecticut (if your mark is federally registered), Florida, Kentucky, Michigan, Nebraska, Texas and Utah.
The US$600-states are Connecticut (if your mark is not federally registered), Hawaii, Indiana, Minnesota, North Carolina, North Dakota, Rhode Island, South Carolina, South Dakota and Wisconsin.
The US$900 states are California, Illinois, Maryland, New York, Virginia and Washington.
This fixed fee does not include state filing fees (which range from US$0 to US$750 per registration state), or postage or delivery services (which can be up to US$45 per state depending on the weight of your registration materials and the delivery method). Unlike most law firms, we do not charge extra for photocopying costs associated with state registrations, which can be substantial because of the number of pages involved.
There are various reasons why state registration applications may be rejected. Payment for state registration services is due when you return the signed forms to us for filing – regardless whether or not the registration application is approved by the state. State registration applications typically takes 1 to 6 weeks after filing to become effective, depending on the particular state. Despite our experience and best efforts, franchise regulators in some states routinely issue comment letters during the registration process. Comment letters normally request that certain changes be made to the FDD to clarify any ambiguities or to comply with state law. Our fixed fee prices cover all of our time required in preparing responses and revising the FDD in response to comment letters.
2. On-Site Visit
It is not necessary from our viewpoint to see your operations or to meet you in person in order to provide superior-quality legal services to you. However, if you request, we will travel to your location and meet you in person to discuss your franchise system. Our fee is US$2,500 per day (including travel days), plus travel, lodging and meal expenses. If you choose to travel to Lake Tahoe to meet us, then there is no charge for this type of meeting.
3. License Agreement
If the new franchisor entity does not own the intellectual property involved in the franchise system to be licensed to franchisees, then the franchisor entity must obtain this right from the owner. Often, the best legal mechanism to do this is a license agreement. Our fee for a license agreement between a related entity and the new franchisor is US$500.
4. Lease Addendum
In some franchise systems, the location of the franchised unit is critical to the success of the franchisee. In those systems, the franchisor may seek to control the real estate by requiring the franchisee to enter into a lease addendum with the landlord in order to protect the franchisor’s interests (such as the right to take over the franchised location upon expiration or termination of the franchise agreement). Our fee for preparation of a standard form lease addendum is US$500.
5. Response to Audit Letters
In connection with the audit of your financial statements, your CPA may need for us to provide certain information about you. Our fee for responding to this type of request is US$350 the first year, and US$250 for later years.
Other Legal Services
We generally provide only franchise law services. So, we do not assist clients in forming new business entities, registering trademarks and service marks, or preparing franchise manuals.
We do, however, prepare various types of agreements start-up franchisors may need in the normal course of business, such as:
software license agreements
independent contractor agreements
strategic alliance agreements
Alternative to Vinson Franchise Law Firm
1. Do It Yourself
Some start-up franchisors use do-it-yourself resources or a competitor’s franchise documents to create their own franchise documents. The resulting products from these efforts are usually ill-conceived, poorly-drafted, and sometimes illegal or unenforceable. We are sometimes hired to fix these kinds of documents after the franchisor realizes that there are severe problems. If you choose this option, you should at least have the documents reviewed and revised by an experienced franchise lawyer before you use them. You should be aware that it often costs more to correct a bad set of documents than it does to create an excellent set of documents to start with.
2. General Business Lawyers
Some start-up franchisors use the services of their general business lawyers. Franchise law is a specialized practice area, and most general business lawyers do not have the necessary knowledge or experience to guide a client through the complex process of starting a new franchise system. If you choose this option, you should at least have the documents reviewed by an experienced franchise lawyer before you use them. You should be aware that it often costs more to correct a bad set of documents than it does to create an excellent set of documents to start with.
3. Big Law Firms
Some big law firms around the country have practice groups that specialize in franchise and distribution law. (I worked at one of these firms for nearly 14 years, and recieved excellent training in franchise law and other specialty areas of the law.) The work product from these firms is typically very high in quality. But, lawyers in big law firms are usually very expensive, they are often not as available and responsive as clients want. Junior lawyers and legal assistants may do most of the work (and are routinely trained on the job at the client's expense). If you choose this option, make sure you know up front what your total costs will be (including charges for intra-firm conferences, photocopies, faxes, phone calls, etc.). Comparable services for the start-up packages from a large law firm will typically be at least US$30,000 to US$50,000 -- especially if the firm bills by the hour.
4. Franchise Development Companies and Consultants
There are some consultants and companies that provide franchise development services. These businesses often require new franchisors to buy a package deal that includes services like franchise feasibility studies, strategic franchise planning, pro forma financial analysis, preparing business plans, writing operations manuals, drafting legal documents, creating franchise marketing materials, and franchise lead generation. The quality of the legal documents varies. Often, the legal documents are unduly slanted in favor of the franchisee – especially if the development company or consultant will be involved in the franchise sales process. These businesses usually do not offer ongoing legal support, and your communications with them are not covered by the attorney-client privilege. The start-up packages can be very expensive -- sometimes US$100,000 or more, and some of the components are of dubious value to a new franchisor. Some of these companies contract out the legal work to a lawyer who you don't get to choose, while some of these companies do the legal work themselves (which probably constitutes the unauthorized practice of law).
Other Resources for Start-Up Franchisors
The International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. It's web site contains a wealth of information about franchising.
See Blue MauMau for informative articles, lists and rankings for the franchise industry.
Entrepreneur Magazine's Franchise Zone includes articles and other information on the franchise industry.
Licensed in California, Nevada and Texas. Not certified as to any specialty by any state bars.
This web site provides general information only. Laws differ from state to state, and they change over time. Nothing included in this web site should be construed as creating an attorney-client relationship, or as the provision of legal advice.
Links to other web sites are provided for your convenience and information. They are not intended to be endorsements. Third-party trademarks and service marks used in this web site belong to their respective owners.
All contents copyright 2002-2017 Robert E. Vinson, Jr. All rights reserved. The information contained in this web site may not be reproduced, downloaded, disseminated, published or transferred in any form or by any means, other than downloading for personal use, except with prior written consent of Robert E. Vinson, Jr.