Understanding Legal Issues Related to Franchises
Choosing to buy a franchise instead of starting your own business can have many advantages, and the franchisor that handles certain things can certainly simplify your operation. On the other hand, it can also be considerably more complicated in some ways, one of which is the tangle of legal issues involved in buying a franchise. Many sources strongly recommend that you acquire a franchise attorney when considering buying a franchise to help you navigate these legal issues.
One of the most important documents you will need to find out is the UFOC (Uniform Franchise Operating Circular) that the Federal Trade Commission requires the franchisor to create. This UFOC reveals a number of things about the franchisor and the business they are selling to you, including what they do, their business experience, the fees you can expect to pay, what kind of investment you will have to make, and whether or not they will pay you. have been involved in any lawsuit. Reading this document can tell you a lot about a franchisor, and understanding it will help you decide if buying your franchise is right for you.
Another document that you should pay close attention to and may need a lawyer to help you understand is the franchise/legal agreement, which will detail your and the franchisor’s rights and obligations. This will tell you things like how long the franchise agreement is for, how you can use your trademark, and what may cause termination of the agreement.
As you review these documents, be sure to pay close attention to how much control the franchisor has over the operation of your business, which can certainly vary by industry and company. If you’re not willing to give up a lot of control, make sure you select a franchisor that fits that need, and make sure you understand what the franchisor is offering in their documents in terms of how much control you’ll have in running your business, because if you come across conflicts with them about the operation of the business later, you want to make sure you know what you are getting into.
You should be suspicious of any franchisor who does not want you to understand these legal documents. If they try to discourage you from hiring a franchise attorney or from reading them carefully, he may reconsider whether or not he wants to do business with them. A good franchisor will have nothing to hide in these documents and will want you to read and fully understand them.
However, understanding the UFOC and a franchisor’s franchise agreement is not enough. He will need to do a lot more research and homework before deciding to buy a franchise. Some other things you can do to help him determine if he’s getting a good franchise are to talk to current franchisees and avoid anything that sounds too good to be true. Being smart when buying your franchise can help you avoid big pitfalls, legal and otherwise.