Purchasing a franchise is a legally-binding agreement, and therefore there are numerous legal concerns involved in the process. As part of your cursory research, make sure to ask every franchisor you interview these important legal questions as you consider your options.
Is any legal assistance provided by the franchisor, and in what situations?
In certain instances, some legal matters may be under the umbrella of the franchisor, and they may, therefore, provide legal help relating to arbitration, contract negotiation, or litigation. This sometimes occurs in human resource/Union relations issues, government matters, copyright/trademark issues, etc. it will be helpful to know about these situations when you are budgeting for your legal help so that you can allocate accordingly.
What is the litigation history of the corporate parent?
Learning about the legal history of a company can tell you a great deal about its values and the way it operates. Before entering into any franchise agreement, carefully scrutinize the legal history of the company in question. What kinds of suits have been brought against the company? Do they have a strategy or threshold for settlements? Are there any patterns that can be identified by the way legal complaints are brought forth and handled?
Is the corporate organization currently involved in any pending lawsuits?
Understanding past legal issues is very helpful, but it’s also important not to overlook the present ad future. As a corollary to the previous question, it’s also crucial to ask whether or not the company is currently involved in any legal disputes that could affect its future.
What is the process for handling disputes between the franchisee and franchisor?
Everyone wants to be optimistic and believe that their relationship with their franchisor will always go smoothly, but disputes are an inherent part of business relationships. The important thing is how disputes are resolved, which is why you must ask your potential franchise company to outline their specific processes for dispute resolution.
Do you assist in negotiating leases?
Certain types of service franchises don’t even need a physical space to operate, while real estate for a storefront is often the primary concern and expense for retail franchises: such is the diverse nature of the franchising world. If your company is going to need to rent a physical space, then you will want to know what the process is with regards to the franchisor. Are you expected to hire your own real estate attorney to review contracts and leases, or is in-house assistance provided by the company?
What will happen to my business if the franchisor declares bankruptcy?
Bankruptcy hearings bring a multitude of uncertainties, so it’s best to have some idea of what will occur in the unfortunate case that it ever comes up. Keep in mind that bankruptcy laws are dependent upon the type of bankruptcy that is being filed, and they also vary depending upon the state.
What is the process for altering contracts?
Contracts are obviously executed in order to answer potential legal questions, but that doesn’t mean there aren’t times when they need to be changed. Does the franchisor have the right to make changes to agreements without your consent? Are you able to sell your stake in the franchise at any time, and is there a fee involved? If you co-own the franchise, what are the legal requirements and procedures for dissolving a partnership?
Are you aware of any legal and regulatory issues unique to my area?
The laws that govern commerce can be vastly different depending upon what state your franchise business is operating in. Certain industries are much more tightly regulated in specific states, and penalties may apply if guidelines are not followed to the letter. To give an example, certain states require franchise restaurants to disclose calorie counts if the company operates a minimum number of units in the area.
If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.