It is inevitable that at some point, you will represent clients who wish to start, expand or buy a franchise. Franchise ownership offers a solid means of becoming a business owner. Franchisees get to operate their business under an established brand and with the support of the franchisor. Due to these factors, franchise ownership is an attractive option.
This type of venture is beneficial for lawyers, too, as it offers another area in which to practice. While there are many advantages, it is imperative to keep certain facts in mind when taking on franchise clients.
Federal and State Franchise Law
Forming, operating and ending franchise relationships makes up the basis of franchise law. It consists of laws and regulations at all levels of government that regulate the way in which individuals and franchises enter into these business relationships. As a franchise lawyer, you will provide guidance and clarity to your clients on franchise laws, argue for changes to the laws and enforce the laws.
Franchise law is a blend of federal laws and regulations, state law and common law. Due to the multi-state nature of some franchises, federal laws regulating franchising are strong. A few states add their own state law. Federal franchise law is derived from 16 CFR parts 436 and 437. It requires franchisors to give franchisees all of the information they need in order to determine if the franchise is a sound business investment.
The information franchisors must share with potential franchisees includes:
- The owner of the franchise, their parent company and affiliates
- Start-up cost estimations
- Bankruptcy information
- Independent business owner obligations
- Territorial limitations and rights
- Business restrictions
- Assistance provided to owners
- Procedures for dispute resolution
When representing a franchisor, it is critical to make sure they provide all of the information as dictated by the law. If your client is a franchisee, it is your duty to let them know they have the right to the aforementioned information. It is essential for them to learn this information in order to make a smart business decision.
A small number of states require businesses to register in the state. Additionally, franchisors and franchisees should be aware they are subject to other state-specific health and business regulations.
Areas of Franchise Law
Territorial limitations are one of the most important areas of franchise law – one that tends to come up relatively often. Just like any other business, competition can negatively affect revenue. With this reality in mind, potential franchisees want a guarantee from franchisors that they will not allow another franchise in the same geographic location.
If another franchise location does open up near an existing location, the original franchisee may want to pursue action to proclaim the franchisor in violation of the operating contract. They may claim the franchisor failed to protect their exclusive territorial rights. When handling this type of case, you must possess a thorough knowledge of every detail in the contract your client signed.
Aggressive litigation is not always in the best interest of the party with the complaint. Sometimes mediation is determined to be a better alternative. After all, by its very definition, a franchise is designed to be mutually beneficial for both the franchisor and their franchisees.
In cases where alternative dispute resolution is adjudged to be the best solution, you must negotiate in a way that produces a satisfactory resolution for your client without becoming overly assertive with the other party’s legal team.
Lawyers Can Earn Commission On Their Franchise Financing Referrals
Part of your job as a lawyer is providing your clients with guidance that empowers them to make the right decisions when becoming a franchise owner or expanding their existing franchise. This includes educating them on every aspect of franchise ownership including the money it takes to open, purchase and operate one of these businesses.
When you partner with us, you can get:
- A sizeable success fee for referrals – 33% of our commission!
- A signed agreement stating we will never try to steal your clients from you
- An additional service to offer existing and future clients
- A wide selection of financing options for your clients for many different types of projects
- Expertise in commercial financing honed over 30 years
- Exemplary treatment of your clients
Our Clients Have a Track Record of Success
A new franchisee of Orangetheory Fitness in Chicago chose us for their non-SBA financing and now has a sustainable source of income for him and his family. He has reaped the rewards of the following benefits:
- $450,000 ($50K working capital included)
- 75% loan-to-project cost
- 8.73% fixed rate for 7 years – (6 months interest-only)
- NO personal collateral and NO real estate
- NO prepay required
- Loan closed 25 days after full submission
- NO escrow for build-out
- Borrowers were approved with NO industry experience