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Opening a franchise is a complex legal commitment

On Behalf of | Feb 28, 2020 | Commercial Litigation |

Some attorneys may often say you need an attorney. But a terrific way to learn a lot of truths about franchising is to find a franchise owner (franchisee) willing to talk to you about the business. They are the ones to ask if they ever think about contracts, laws or lawsuits.

As one author put it in the pages of Entrepreneur magazine, “the prudent franchisee keeps the number of his or her franchise attorney on speed dial.”

Your first Franchise Disclosure Document (FDD)

For some franchisees, the moment they realize a franchise is a creature of the law is the day they get their first FDD.

According to federal law, the company you are thinking of working with (the franchisor) must send you an FDD well before you sign on the dotted line. It frequently goes on and on for hundreds of pages.

Agreeing to legal control over your decisions

The company usually says nothing in the franchise agreement is negotiable. But most things (not all) are negotiable anyway. An attorney can help you make proper decisions and reasonable demands regarding issues like:

  • Monthly royalty payments, their size, whether the company withdraws them from your account automatically, etc.
  • Territory questions like whether another franchisee can open the same brand across the street, or whether your exclusive territory is defined by drive time, radius on a map, or city or county lines, etc.
  • If a non-compete clause will stop you from opening any other stores or just those of the same or different brand or product, when and where you want to, etc.
  • Whether you can close the franchise when you want to.
  • Whether you can or sell it, and if you can control who you sell it to and for how much.

The International Franchise Association offers several ways to think about what a franchise is. In the end, they spend the most time writing about why a franchise is a “contractual relationship.”