Starting a Franchise: Franchise Relationship Laws

Franchising a company is like starting a profession which is highly regulated at both the federal and state levels. A business owner who establishes a franchise system becomes involved in support of individual franchisees, providing marketing plans, training, overseeing the supply and distribution processes, and administration.

Legal compliance alone can be challenging:

The Federal Trade Commission’s Franchise Rule requires franchisors to disclose certain information to potential franchisees. The FTC mandates 23 areas that must be addressed in the Franchise Disclosure Document, or FDD.

State disclosures vary. A franchisor that wants units in several states must be ready to make specified disclosures in all of those states.

Federal and state regulations for FDDs define or influence: how the franchisor-franchisee relationship is conducted; financial obligations of both parties; responsibilities for operational matters, training and resolving disputes; restrictions on products and services; financial and legal history of the company and its executives; and other subject areas.

Franchise Due Diligence

Lewitt Hackman conducts franchise due diligence for buyers and sellers of franchises. Concerns include legal compliance and terms of the franchise agreement, including intellectual property rights, financial stability, fiscal responsibilities, and the term length of the franchise relationship.

Franchisees want to know about market conditions where a unit is to be purchased in terms of real estate costs, competitors, and length of time it takes to make a profit.

Franchise Purchasers

An ideal franchise relationship is made more likely if the agreement properly balances risks and obligations for both the franchisor and franchisee, and both sides adhere to its terms. Our extensive experience in registration and disclosure matters, as officers of corporate boards and members of franchise legislative committees, makes us uniquely qualified to counsel buyers of franchises.

We handle every aspect of transactions, alternative dispute resolution and litigation — from the first phase of negotiations to terminations and non-renewals.

Credentials

Barry Kurtz, David Gurnick and Tal Grinblat are Certified Specialists in Franchise and Distribution Law, per the State Bar of California Board of Legal Specialization.

Mr. Kurtz, Mr. Gurnick and Mr. Grinblat have all been retained to provide expert witness testimony on franchise law because of their hands-on experience working with both franchisors and franchisees with national and international units; their service as officers of corporate boards; and their prolific authorship of texts, articles and treatises.

Read more about our Franchise Attorneys’ Experience.