Congratulations! You've created a business concept which you can teach others to recreate and operate. Franchising is an excellent model for expanding your business and profiting from your success.
But be aware. Franchising is governed by very particular federal and state laws. Some of these laws impose stiff civil penalties for non-compliance.
Additionally, successful franchising will require that you (the franchisor) clearly establish the obligations between you and your franchisee(s).
Federal Disclosures / The FDD
Federal disclosure laws exist to ensure that prospective franchisees are provided essential information about the franchisor, its business, and the contract that will be entered between the franchisor and the franchisee.
These disclosures must be provided in a lengthy and detailed document, known as a Franchise Disclosure Document (FDD).
Additional State Law Compliance
Some -- but not all -- states impose additional requirements upon franchisors. Most of these states' statutes are patterned after California's franchise sales laws. However, each states statutes are sufficiently different from the next. These differences leave franchisors that offer franchises on a multi-state basis to contend with an uneven patchwork of rules.
The Franchise Agreement
Your franchise agreement is the actual written contract between you and your franchisee. It will set out all of the parties rights and obligations. If written properly, it will significantly reduce disputes, and it will protect both you and your good franchisees from damage that can be caused by bad franchisees.
One of the fundamental aspects of a franchised business is the common brand name. If you haven't already done so, you will want to obtain trademark rights in your franchises name and logos.
The Role of Your Franchise Lawyer
The attorneys at Dickinson & Wheelock have experience in both the legal and business aspects of franchising.
We will help you structure your franchise and comply with all the legal disclosure requirements. We provide the following types of services to new franchisors:
- Draft and regularly update your FDD, in compliance with the FTC-Rule
- Ensure compliance with the law of each particular registration state
- Guidance in the type of franchise structure (e.g. single units, area development, sub-franchising, etc.)
- Guidance in the terms of your franchise agreement (e.g. royalties, fees, confidentiality, non-competition, reporting, audit, default, transfer, renewal, etc.)
- Draft franchise agreements and related agreements
- Obtain and ensure trademarks and licenses to vital intellectual property
- Negotiate and document deals with prospective franchisees
- Provide ongoing legal support in all business areas (i.e. serving as general counsel in business transactions, employment issues, litigation (and litigation avoidance), etc.)