Running A Franchise Business Seamlessly

Running A Franchise Business Seamlessly

A franchise business model can be rewarding if handled well and frustrating if not handled well. Franchise businesses are typically hard to manage and can easily be disrupted, to an extent of stalling, if the business partners disagree on some issues.

Legal disputes can occur in any business, and it’s wise to prepare now for misunderstandings that may occur in future. The standard advice is to involve a top franchise lawyer and protect your business interests if disagreements occur in future. A franchise lawyer will help you avoid costly litigations besides providing legal advice, mitigating disruptions, and reconciling you with your business partner in the event of disputes.

What is a Franchise?

A franchise is a business model where an investor (franchisee) pays a fee to a successful business (franchisor) and is allowed to open and operate under a similar business using the name of the franchisor. Franchises are governed by franchise law.

What is Franchise Law? Franchise law is a mixture of state and federal laws for governing franchises. This law addresses common challenges encountered in franchises, including offer, acceptance, business relationships, and terms of sale. At the highest level, which is the federal level, franchisors should provide investors with a franchise disclosure document (FDD) detailing the pre-sale disclosures for the franchise. In some states, you’ll be required to provide more disclosures which supplement the disclosures provided at the federal-level.

FRANCHISE AGREEMENT A franchise agreement details all aspects of a franchise, and it helps govern the working relationship between a franchisor and the franchisee, and their contents include: • • • • •

Obligations and duties.

Permissions, particularly for the franchisee.

Restrictions given to the franchisee.

Franchise fee to be paid.

Trademark details.

How Long Do Franchise Agreements Remain Binding Most franchise agreements remain active for 10 to 25 years. However, the average is 10 years. Typically, franchise agreements come with a renewal clause, where perpetual agreements override the agreements and become binding.

Franchisees cannot terminate an agreement. Renewal is either automatic, indefinite, or after the agreed period elapses. Their only option is to wait for any of the above scenarios to present itself or transfer their ownership to other willing investors.

Otherwise, the franchisor can sue for liquidated damages.

Common Franchise Disputes

Most franchise agreements include a dispute resolution mechanism, including mediation or arbitration. Otherwise the disputing parties should consider mediation, which doesn’t always resolve serious business disputes. The disputing business partners should contact a franchise lawyer if the mediation process bears no fruits. Legal disputes in franchises cause strains that disrupt operation and hinder business growth. You’ll need good legal representation to avoid such challenges, besides protecting your business interests. A franchise lawyer will guarantee prompt action and help minimize disruptions when disputes arise. Most franchise agreements are drafted with the franchisor in mind hence, favoring them. This means the franchisee will likely be exploited in case disputes arise. Common franchise disputes include:

• • • • • • •

Discovery of wrong pre-sale disclosures.

Failure to comply with the franchise agreement.

Abuse of rights and privileges.

Breach of trust.

Contractual and license breach.

Enforcement problems.

Termination disputes

Dispute Resolution in a Franchise Although most franchise agreements include conflict management mechanisms, most states have thriving franchise laws to help franchises in time of crisis. The dispute resolution in a franchise agreement becomes void where the state law is applicable. In some cases, state laws allow franchisees to make claims that are not allowable under common law. A franchise lawyer acts as a go-between when the franchisor and franchisee are reading from different scripts.

Characteristics of Good Franchise lawyers Not all franchise lawyers are competent; some will worsen an already tense situation and land you into more trouble. Consider the following characteristics when involving a franchise lawyer:

• Wide experience.

• Good track record.

• Commitment and dedication.

Best Practices for Franchise Investors Start off with the help of a Lawyer Most people start off without any legal help when establishing a franchise, and when disputes arise, they suffer the consequences, including exploitation.

Ensure the franchise agreement is clear Both parties should be clear on their duties, roles, and obligations from the onset. The franchise agreement should be clear since ambiguity may be used for defense when disputes arise.

Avoid get-rich-quick temptations As stated earlier, franchises can be rewarding. In fact, investing in a franchise is one of the most lucrative ventures. However, you can be easily be tempted to earn more by engaging in malpractices, such as wrongful disclosures to win investors’ confidence, which can impact the business and your reputation badly if they come to discover.

Business relationship in a franchises should be mutual, and none of the two parties should exploit the other or have comparative advantage. A franchise lawyer ensures the business interests of each party are safeguarded for smooth operation.

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