If you are looking to invest in a franchise or expand your business by franchising, why is it important to hire an attorney experienced in franchise law? Why can’t your neighborhood law firm handle this for you? The reason is that the franchise laws, those laws that govern the legal relationship between franchisee and franchisor, are governed by both the Federal Trade Commission (FTC) and certain state laws. The laws are quite complex. An attorney who is unfamiliar with the intricacies of these regulations and the case law that has evolved to interpret them, will not understand the implications and importance of the documents and how they impact an individual or business.
If you are a potential franchisee looking to invest in a franchise, as i discussed in an earlier blog posting, an attorney who is unfamiliar with franchise law will not know what is typical in a franchise agreement, which items present “red flags” that need to be addressed, what can be negotiated and what cannot and how to best represent the client.
If you are a business that is looking to franchise your concept, an attorney unfamiliar with franchising will not know how to properly prepare the required documents and properly advise the business on structuring the franchise. By hiring experience franchise counsel, such as my firm, a business is assured of obtaining proper legal advice on preparing the legal documents necessary to comply with both the FTC regulations and the states in which the business desires to expand. The FTC requires that a franchisor provide every potential franchisee with a disclosure document (known as an FDD) prior to accepting any money from the potential franchisee and prior to that person signing any binding agreement with the franchisor. The FDD must be written in plain English and not be misleading or contain any misrepresentations. It is this latter requirement that gets so many businesses into trouble. Many of my franchisor clients have come to me having already purchased a “canned” FDD on the Internet for minimal cost. On the surface, the FDD looks like it is compliant, but upon review of the document I discover that it has many serious errors and misrepresentations. A business using such a faulty FDD could be fined thousands of dollars daily for violating federal and state laws.