The term “franchise” is used to refer to a business that a franchisee operates. The term actually has a distinct legal meaning (and responsibility) and refers to the permission given from a franchisor to a franchisee to do business using the brand and products of their existing business. The benefit of starting a franchise is that the tools necessary for running the business are provided by the franchisor and made available to the franchisee.
Sounds great! How do I start?
When selecting a franchisor, you should consider the pros and cons of opening a franchise with a particular brand, and the reputation of that brand. Ensure the franchise aligns with your business interests. Approach the franchisor using their franchising process and keep in good communication. The franchisor will likely have a set of conditions to which you must be willing to agree. When ready to move forward, the franchisor will reach out and provide you, the franchisee, with required disclosures (which are governed by Federal Law) and the official franchise agreement to be signed and returned. These may require some modifications that will have to be agreed to before execution and you should be sure you thoroughly understand your obligations prior to formalizing this agreement.
What should I know about my franchise agreement?
The franchise agreement outlines the requirements and obligations you have to the franchisor and the existing business. Key provisions covered in the franchise agreement are:
Royalty or Continuing Fee– a fee owed by the franchisee to the franchisor for the rights to use the franchisor’s business name and utilize their products and methods.
Intellectual Property– often the franchise agreement will outline the relationship between both parties involved, citing any intellectual property and ownership rights.
Guarantee– the franchisor will often ask that the franchisee make a personal guarantee; a franchisor is often a company itself and will try to protect its interests.
Property– to keep the look of the business consistent to the public, a franchisor will often be the party acquiring or leasing property with which the franchisee will run the franchise. They may also insist on selecting the design or the hiring a team to make sure the property meets their predetermined specifications.
Non-Competition Agreement– to protect the interests of the franchisor and the existing business, the franchisee will often be asked to sign an agreement of non-competition; this may be in the form of restrictions against the franchisee from any activities deemed competitive.
An experienced attorney can help guide your decision when assessing the viability of a potential opportunity and help you understand the impact of the contractual agreements. The attorneys at the Kendrick Law Group are dedicated to providing quality legal counsel for a range of business legal matters. Contact us today to schedule your consultation.