Representing Franchisors and Franchisees in Franchise Agreement negotiation/drafting; Franchise Development Agreement drafting/ review; Franchisor registration applications; Franchise Disclosure Document drafting/review; and franchise dispute resolution.
The Franchise Model
The franchise model has proven to be a very effective method for conducting business. In short, it allows an entrepreneur to develop a business model, including trademarks, systems and support modes specific to a particular trade or industry, and then solicit franchisees to invest their capital in the business model and assume much of the market risks. In return, the franchisor collects royalties and fees. For the franchisee investing their assets in this venture, the franchise provides a brand name and in-place systems, thus allowing them a quicker entry into a given industry.
The Success of the Franchise Business Model
To put the success of this business model in perspective, consider that in 2011, there were 735,571 franchises in North America, which generated $745 billion dollars in revenue. Prior to the Great Recession, there were 770,835 franchises, generating $675 billion in revenue. (Report by HIS Global Insight for The International Franchise Association Education Foundation: See, The Franchise Business
Economic Outlook: 2012) Therefore, franchise businesses make up a very substantial portion of small businesses in the United States.
Factors to Consider When Building a Franchise Business
A major factor to consider in building a franchise network is government oversight. The Federal Trade Commission is tasked with regulating the national franchise market. http://www.ftc.gov/ However, state governments also play an essential role in oversight of franchise activity. There are thirteen states in which a Franchise Disclosure Document (or Circular) must first be reviewed and approved by that state’s securities officials before franchises may be offered in the jurisdiction. Failure to comply with these registration state requirements can result in severe monetary penalties and perhaps court injunctions to halt the business’s activities. Moreover, a majority of the remaining states have passed business practice laws which also impact franchise relationships.
Therefore, it is essential at the formation stage of your franchise company to become educated about the common, nation-wide regulatory requirements, as well as state-specific requirements, to assure that your model and practices comply with the jurisdictions in which you seek to sell franchise rights.
The Other Side of the Business - The Franchisees
On the other side of the franchise spectrum, are the franchisees. Franchise business owners require experienced franchise attorneys to protect them from aggressive franchisors. Recently, this issue has made headlines concerning litigation between the McDonalds® and 7-Eleven® franchisees and franchisors. It is the franchise owner attorney’s job to hold the franchisor to the terms of the Franchise Agreement, and oftentimes to identify Disclosure Document (Circular) terms or procedures which violate federal statutes, Federal Trade Commission (FTC) regulations, or applicable State securities/franchise statutes/regulations.
Additionally, as most Franchise Agreements provide you with limited rights in suing the franchisor in Court, your attorney should have experience advocating clients’ positions and claims before arbitration panels, such as the American Arbitration Association.
How Kilcommons Law Can Help You
Kilcommons Law has the experience in representing both franchisors and franchisees in litigation, contract drafting and negotiation. Specifically, the Firm provides the following services:
For the Franchisor: The meticulous preparation of Disclosure Documents and Franchise Agreements for examination by state securities officials, and shepherding the process of negotiations with franchisees both in the initial stage of the relationship, together with any conflicts between the parties in the later stages of the term(s). Kilcommons Law is able to guide you through the difficult issues often encountered by franchisors concerning compliance with the various FTC required “Items” disclosures, and specific state securities requirements. Further, we have litigated before the American Arbitration Association on both franchise and commercial matters.
For the Franchisee: We carefully review the Disclosure Documents and Agreement and advise you to ensure your due diligence is complete and sound. In the event of disagreements with the franchisor, we will negotiate an amicable resolution, or pursue your remedies under the contract through arbitration or the courts. By unearthing disclosure oversights or misrepresentations in the Disclosure Document or Agreement, or violations of Federal or State statutes/regulations, we even the playing field for you.
Let Kilcommons Law take the field for your franchise business.
This article is not intended to be relied upon as advice for your particular circumstances. Therefore, consult with a qualified FRANCHISE ATTORNEY before offering or signing a franchise agreement or franchise disclosure document.
© Kilcommons Law, P.C. 2018