Franchise Legal Tip of the Day - Start Up Franchises: Do's and Dont's

Many start-up franchisors that I work with are uncertain as to what they can do or say when offering their franchise for the first time.  This is particularly difficult when the franchisor has no financial performance representations and no franchisees to refer prospect to.  Here is a very basic list of issues to keep in mind when making your first offering.  I would strongly suggest that all start-up franchisors consult with an attorney for an in depth discussion on how to comply with federal and state law and regulations as this is not intended as a complete or definitive list but instead as topics that you should be thinking about. 

Do's:

• Remember that your first few franchisees can be your best salesmen or your biggest hindrance depending on how they are treated.
• STATE ONLY WHAT’S CONTAINED IN THE DISCLOSURE DOCUMENT
• DELIVER REGISTERED DISCLOSURE DOCUMENT ON TIME: Federal law requires that the FDD is provided 14 days before the franchise agreement can be signed or money accepted.  The 14 days commence the day after delivery of the FDD.  (Make sure the FDD receipt is accurate.  There are also, amongst other rules, pre-disclosure requirements as well as a 3 day mailing rule that you should be aware of before engaging in franchise offerings). 
• BE SURE OF POTENTIAL PURCHASER’S:

(a)  STATE OF RESIDENCE

(b)  PROPOSED PLACE OF BUSINESS 

(c)   PLACE OF DELIVERY

 Each of these locations may impact the disclosure that must be provided -

AND MAKE SURE THE FRANCHISOR HAS MET ANY STATE REGISTRATION REQUIREMENTS BY CHECKING WITH YOUR ATTORNEY

• GET A SIGNED AND DATED ACKNOWLEDGMENT OF RECEIPT OF DISCLOSURE DOCUMENT –

DON’Ts

• DON’T SUGGEST ANY POTENTIAL EARNINGS, PROFITS, OR LEVEL OF SALES, WHETHER IN THE FUTURE OR HISTORICAL WHEN YOU HAVE NO ITEM 19 FPRs.
• DON’T GUARANTEE SUCCESS
• DON’T MISREPRESENT THE OFFER
• DON’T OFFER A FRANCHISE UNLESS STATE LAW COMPLIANCE HAS BEEN DETERMINED
• DON’T OFFER A SERVICE TO ONE FRANCHISEE THAT’S NOT AVAILABLE TO ALL FRANCHISEES
• DON’T ADVERTISE A FRANCHISE FOR SALE OR DISTRIBUTE SALES MATERIAL WITHOUT FIRST GETTING LEGAL APPROVAL AND OBTAINING REGISTRATION OF ADVERTISING MATERIALS WHERE REQUIRED

 Jeremy Liebman is an attorney with the law firm of Kaufman, Miller & Sivertsen, P.C. in Atlanta, Georgia. Jeremy graduated from Emory University School of Law where he was the coordinating director of the Emory Moot Court Society and was awarded its Most Outstanding Member Award. Jeremy advises franchising and distribution clients on all aspects of the franchise relationship, including both transactional law and litigation. Jeremy works alongside John Sivertsen, former General Counsel of Arby's Inc. and the former Assistant General Counsel of Burger King Corporation. This column is not intended as legal advice and should not be relied upon in any way. No attorney-client relationship exists.  You should contact an attorney to discuss your matter.