Franchising Your Business
Franchising your business is complex. There are statutes and regulations that you must follow. At Bundy & Fichter, our attorneys have over 50 years of experience in franchise law. In addition to representing franchisors and franchisees, our attorneys have been involved in the legislative and regulatory processes. We understand—and ensure that you understand how to comply with—all relevant laws and regulations. We can train you and your staff to get the job done right.
What is required?
The Federal Trade Commission requires presale disclosure in all states through the use of a Franchise Disclosure Document (FDD). Additionally, several states require registration of the franchise before it can be offered or sold. Several other states require notice filings. At Bundy & Fichter, we will guide you through the disclosure and registration process, including informing you about:
- The franchise disclosure document — what needs to be disclosed?
- The limits on advertising
- Marketing your franchise on your website and elsewhere
- When you can start talking to people about your plans to sell a franchise
- How long it will take before you can start selling franchises
If you are considering franchising your company, it is essential to maintain accurate records and keep a detailed journal that lists all prospective franchisees and your interactions with them. We will help you develop the necessary tools for franchise compliance.
Do you need a franchise attorney?
It is imperative that you have a franchise attorney who has experience representing franchisors. Do not trust a non-attorney “consultant” who offers to sell you a franchising package. Franchise consultants can play a valuable role in helping you structure your procedures and document them so franchisees can follow them. However, if they are not lawyers, they cannot advise you of the legal implications and potential liabilities that are inherent in every franchise agreement and franchise relationship. They cannot properly assist you in complying with the registration and disclosure laws. Having a qualified and experienced franchise lawyer is the only way to protect yourself and your business. The lawyers at Bundy & Fichter would be happy to help you.
Beware Of Unintended Franchises
If you are considering or discussing letting someone else operate under your brand and assist them with operations in exchange for a little money, be aware that what you are considering may be a franchise. You may call it a “license” or a “joint venture” or something else, but if it has the three elements of a franchise, it is a franchise. We find that many attorneys do not even understand this and sometimes place their clients at risk by drafting documents that violate the franchise laws. If you are considering a transaction where someone else will be conducting a similar business using your trade name or brand, you should consult with an experienced franchise attorney before you enter into any kind of agreement. The adverse consequences of a mistake could be substantially greater than any amount of money your unintended franchisee will ever pay you.
Your need for legal compliance does not end with the sale.
Your legal compliance concerns do not end the day you sell a franchise. Several states have specific statutes governing the ongoing relationship between the parties. Those laws limit your ability to terminate or otherwise restrict a franchisee’s rights under the contract. They may require you, subject to certain conditions, to renew the contract at the end of the term. They may require you not to discriminate between franchisees, and they may place conditions on your right to receive money from certain sources based on the franchisee’s efforts. The laws of each state that has them are unique. Many states have no specific relationship statutes. As a franchisor, you must understand and comply with the laws of every state into which you sell franchises. An experienced franchise lawyer can help you understand and comply.
Are there disclosure requirements beyond just the FDD?
At least 21 states have specific statutes that provide that you must tell only the truth and the whole truth to a prospective franchisee regarding the franchise you are offering. It is comparatively easy to avoid telling lies. It is much more complex to comply with the requirement that you not fail to disclose any fact necessary in order to make what you did tell them not misleading. The Federal Trade Commission Franchise Rule, which requires the FDD in every state and specifies what a franchisor must disclose in the FDD, results in a long list of what you have a duty to disclose, in addition to anything you said verbally or in any document. As you plan and execute your franchise offering, it is essential to consult with experienced franchise counsel frequently to ensure you are not missing any facts that you may be required to disclose.
What about states with no franchise statutes?
Just because your state or the state where your prospective franchisee lives or plans to operate has no specific franchise statute does not mean that you have no legal compliance to deal with. Many of those “non-registration” states have “Business Opportunity” statutes. Some use different names. Some have “unfair trade practice” statutes. In some cases, your offering may be exempt from complying with those other statutes. Some states require registration if you are not exempt. No two are identical. You should work closely with an experienced franchise lawyer to ensure you do not run afoul of any non-registration state laws. Bundy & Fichter would be happy to work with you.
Franchising your business can be very rewarding. It enables you to expand the distribution of your goods and services beyond what you could have done otherwise. However, your chance of success will depend, in part, on your ability and willingness to comply with all applicable franchise laws. If you are considering franchising, contact us, and we will be happy to consult with you to help you avoid costly mistakes or oversights.