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I recently participated in a discussion on Linkedin as to whether a franchise attorney is necessary. There was a lot of good feedback on the pros and cons, and thus I wanted to share my personal feelings on the topic.
When you’re buying a franchise you’re making a considerable financial and lifestyle investment. Some franchise agreements may have provisions with unnecessary liabilities and covenants that should not be included. The cost of having an attorney review and negotiate an agreement is typically fixed and represents a small cost relative to the total investment. In my opinion, it’s imperative that candidates hire counsel, as they’re an important part of the due diligence process.
Let’s talk about where a good franchise attorney can add value. First and foremost, the Franchise Disclosure Document (FDD) and Franchise Agreement can be confusing. These are drafted in legal terms and often by people with no knowledge of unique circumstances presented when a franchise is opening in a new market. While you may feel comfortable with the business and comfortable with the model, the legal component can be difficult to understand. A qualified franchise attorney can help explain the agreements and provide an understanding of what you are signing.
Another thing to consider is negotiating a better agreement. Most franchise documents are generally “boiler plate”. In certain instances there may be provisions that are unreasonable, not applicable but still carry liability to the franchisee. Eliminating these from the agreement can reduce liability protect you and your business. I find most concepts are willing to provide some flexibility with the agreement. An added benefit to your negotiation is you’ll discover if the franchisor is reasonable and good to work with, if there is a lack of flexibility, you may want to reconsider the investment. Some concepts may even go so far to say they will not negotiate the document, whether they will or won’t, this is a business transaction. It never hurts to ask, the worst response you’ll get is no.
Aside from negotiations and document review, if you are starting a business you’ll need to form a business entity to limit liability. While you can do this yourself, it’s not advisable. Every state has different laws regarding business structure, it’s important to get it right, as the financial and tax consequences could be severe if you make a mistake. Most franchise attorneys will provide this service as a component of their fixed fee.
A franchise attorney is an essential part of the due diligence process. Most tend to work on fixed fees that are reasonable and insignificant relative to your total investment. A qualified counsel can help explain and negotiate your agreements and create the appropriate ownership structure. When looking for counsel, it’s important they’re experienced in the nuances of franchise law. Make sure you get a clear understanding of the costs and the services provided. Do they explain the process, are you’re comfortable in working with them. It’s important to get started on the right foot. A thorough review by a qualified franchise attorney is critical to your success.