Buying a franchise in the near future? Have you thought about the legalities involved with opening up a franchise business? Do you need to have an understanding of the law? Let’s find out.
Did you know there are federal and state laws on the books regarding franchising? And that 11 states require franchisors to submit a copy of their Franchise Disclosure Document (FDD) to the state regulatory authority? That sure complicates things. Mostly for new franchisors. That’s because it slows new franchise unit sales down which are the lifeblood of a new franchisor. Go here to learn about the FDD.
Who Does Need to Know?
The franchisor definitely needs to know about franchise law. Here’s why:
I’ve been in situations where clients of mine were looking into franchise opportunities that weren’t registered in their states. That’s a big deal. Franchisors are not permitted to sell franchises in states where they aren’t registered. You’re more likely to run into a situation like that if you’re looking at a franchise concept that’s recently been introduced. In other words, a new franchise opportunity. (Or a young one)
Tip: If you’re interested in a franchise opportunity that has a low number of outlets, ask the franchise development representative if their franchise opportunity is registered in your state.
The other person who needs to know franchise law is the attorney you end up hiring. That’s because there’s a lot of information to go through in both the FDD and the actual franchise agreement. I don’t recommend doing it yourself.
(I’ve had a couple of attorneys as clients in the past, and I even told them to hire an attorney familiar with franchising.)
Hire A Franchise Attorney
When it comes to making a big decision-like investing in a franchise business, it really makes sense to use specialists familiar with franchising and franchise law. Like a franchise attorney.
An attorney who specializes in franchising can save you time, money, and future headaches. I’m involved in franchising in one way or another every single day, and I sometimes have trouble understanding franchise agreements. You’re definitely going to want to have a franchise attorney by your side as you get closer to decision day. But, not before.
Tip: You don’t need to hire a franchise attorney until you’re almost 100% sure you’re buying the franchise you’ve been investigating. It’s fine for you to look over the FDD and the agreement before you call an attorney. You’ll need to go over (and use) the FDD to get the names and phone numbers of current franchisees-so you can reach out to them and ask them questions about their experiences.
Once you’re ready...once you’re at the “I’m pretty sure I’m going to buy this franchise,” stage, it’s time to contact a franchise attorney. He or she will go through the FDD and the agreement so you completely understand what your obligations will be as a franchise owner. Obligations of the franchisor will also be discussed when you meet, as well as learning what your liabilities are if things go the wrong way.
One more thing: The typical franchise agreement is 10 years in length. A franchise attorney can go over possible exit strategies with you.
If you’re going to invest your hard-earned money in a franchise, please make sure you use specialists along the way.
One of the specialists you need to hire is an experienced franchise attorney. An attorney that specializes in all things franchise-related. A person who keeps up with the constantly-changing franchise laws. A person who can provide professional legal advice as you go down the franchise business ownership path.
The Franchise King®, Joel Libava, is a top franchise expert. If you're looking to buy a franchise, be sure to check out his private consultations, his popular books, and his comprehensive new franchise ownership course. Go here to learn more about The Ultimate Franchise Course and the extraordinary offer he just put together.