Franchise disclosure documents are hard to read. It is difficult for franchisees, it is difficult for franchisors, and can even be challenging for attorneys without the necessary franchise experience.
As a franchisee, you are entering into a binding contract with a franchisor for your franchised business. If you breach this contract, you will likely lose your investment, and also risk being sued.
Start with the franchise disclosure document, which is a great resource. The franchise disclosure document (“FDD”) contains all of the contracts you will have to sign with the franchisor. For example, the FDD contains the franchise agreement, an area development agreement, personal guarantees, and amendments. To fully understand your obligations as a franchisee, you have to understand the FDD, the franchise agreement, and the franchise laws in the state where you plan to operate your franchise.
This stage in the process is when a franchise lawyer becomes very useful. An experienced franchise attorney can help you navigate and understand the FDD, the franchise agreement, and the various laws with which your business must comply. A good attorney can even help you negotiate certain terms in the franchise agreement, potentially saving you thousands of dollars throughout your franchise term.
Most potential franchisees think they can save costs at the beginning of the franchise process by simply trusting the franchisor and avoiding legal fees. However, when it comes to franchising, an ounce of preventionis worth a pound of cure. Remember, you are investing potentially thousands of dollars in a business and this type of investment should be worth investing in good legal counsel.
So, how do you choose and hire a franchise attorney? The following tips may help:
1. Franchise Attorneys. There is such a thing as a franchise attorney, meaning a business lawyer who specializes in franchising. Franchising is a subsection of business law that is extremely specialized, and a small business lawyer, even a really good one, may not be sufficient. Look for a franchise and distribution law firm with an attorney who has experience reviewing franchise disclosure documents and franchise agreements. This law firm can be based anywhere in the United States, because much of franchising is dictated by federal law. Most franchise lawyers are also educated on state-specific franchise laws throughout the U.S.
2. Experience. Pick a franchise lawyer based on his or her experience with advising franchisees. An experienced franchise attorney should advise you on the pros and cons of buying a franchise, and help you weigh the risks of the franchise business so you can evaluate whether it is right for you. Your franchise attorney may also give you some insider information about the franchising industry. Because the attorney represents your interests, he or she will be more candid with you than the franchisor and its salespeople may be. A good franchise lawyer may even help you avoid fraudulent franchises.
3. Initial Consultation. Request a free initial consultation and ask the following questions before engaging a franchise lawyer:
4. FDD Review. Pick an attorney who will provide you an initial review of the FDD and can provide his or her legal advice in a written memo on a flat fee basis. You can then have time to read the memo and digest the information on your own time, and go back to the attorney with more questions. This will probably be most cost efficient, and any follow-up consultation you may request will probably include an additional cost.
5. Start Up. Pick a franchise attorney who has experience with small businesses. This attorney should be able to set up your limited liability company or corporation in your state, advise on obtaining licenses, negotiate your lease, help you hire employees, and provide any legal services that a small business owner may need. Having one source for these legal services may save money in the long run, and you can build a relationship with an attorney who knows your business as well as you do, and help you avoid common pitfalls, so you can become a successful franchise owner.
6. Disputes. It is highly recommended to pick a franchise law firm that can also handles franchise disputes. Because franchising is a unique and highly regulated area of the law, a litigation or business lawyer may not be prepared to resolve franchise-related disputes. Hiring a franchise litigation attorney may lower costs, and resolve the dispute more quickly than an attorney who does not specialize in franchising.
Doing a bit of due diligence now can save a lot of time and prevent future problems. Legal representation may ease the complicated process of buying a franchise, and provide peace of mind knowing that someone is looking out for your interest.
The contents of this article do not constitute legal advice nor does it create an attorney-client relationship with Canada Lewis & Associates PLLC. You should discuss your situation with an attorney whom you have engaged to perform legal services for you. If you wish to retain the services of Canada Lewis & Associates, please contact our office for more information.