4 Tips for Engaging a Franchise Lawyer

When deciding whether to invest in a franchise, it is crucial that prospective franchisees do everything in their power to protect themselves legally. By providing expert advice and guidance, franchise attorneys serve as important partners for people interested in becoming franchisees.

1851 Franchise connected with franchise attorneys Fredric Cohen, partner at Cheng Cohen LLC, and Carl Zwisler, attorney at Grey Plant Mooty, for tips about when, why and how prospective franchisees should engage franchise attorneys.

1. Engage a franchise attorney as early as possible.

When it comes to timing, Cohen and Zwisler agree that prospective franchisees should consult a franchise attorney after identifying a franchise they are interested in owning.

“Practically speaking, people should start looking for a franchise attorney when they find a franchise that they think is right for them,” Zwisler said. “Hire one before you commit to or sign anything, including agreements and leases.”

Cohen believes it is important for people to engage an attorney before obtaining a Franchise Disclosure Document (FDD), which is a form all prospective franchise owners are required by law to receive before buying a franchise. The FDD covers everything the Federal Trade Commission believes prospects need to know about a franchisor, including critical provisions franchisees are legally required to uphold.

“The disclosure document can be daunting to some, but it is essential that the prospective franchisee not only read and understand its contents, but also that he or she grasp the significance of the disclosures,” Cohen said. “Unless the franchisee is highly sophisticated and experienced in franchising, franchise counsel should be engaged to explain the disclosures and their significance, which may not be readily apparent.”

2. Hire an experienced attorney who specializes in franchise law.

There are thousands of attorneys in the United States, but only a handful of them specialize in franchising. Therefore, it is important to engage a competent attorney who has taken the time to learn all the intricacies of franchise law. As experts, they know what to look for when reviewing FDDs and can help prospective franchisees navigate ever-changing franchise laws, including ones that are state-specific.

“Attorneys who represent franchisees full-time, as well as those who represent franchisors, have seen a lot of issues and can anticipate what could go wrong,” Zwisler said. “It is worth the additional money to retain someone who has experience working with multiple franchisees and franchisors.”

3. Seek counsel for all matters related to the franchise purchase.

Along with help reviewing FDDs, prospective franchisees usually require additional legal advice before investing in a franchise.

“If the opportunity involves a brick and mortar operation, a lease will likely need to be negotiated and reviewed,” Cohen said. “If the franchise agreement calls for a personal guaranty, it will be important to consider the impact of a guaranty on the individual’s estate planning and personal exposure. If the business requires licensing, counsel can help secure the license. If the business is in a highly regulated industry, counsel can help the prospective franchisee understand and comply with the controlling regulations. The issues the prospective franchisee will need to deal with will vary from situation to situation.”

According to Zwisler, franchise attorneys can also help prospective franchisees determine if a franchise is the right fit for them. Beyond explaining legal documents, a good franchise attorney can offer an educated opinion about the feasibility of a new venture.

“Understanding the business model and how a franchise operates compared with competing franchise concepts is very helpful for people trying to decide if they should become a franchisee and which franchise is best for them,” Zwisler said.

Additionally, franchise attorneys can help people decide how their franchises should be set up, which will determine their legal rights as business owners and how they are taxed. They can explain the differences between a sole proprietorship, a limited or general partnership, a limited liability company (LLC), and S and C corporations.

4. Consult a franchise attorney after the purchase.

Franchise attorneys can continue offering counsel after the initial purchase. Whether it is a dispute with a franchisor, financial problems, or negotiations with contractors, suppliers and staff, franchise attorneys are able to provide legal advice to franchisees in a variety of situations.

“The two most common times franchise attorneys are consulted by franchisees is when someone wants to get into a business and when someone wants to get out of a business,” Zwisler said. “If you decide you don’t want to be a franchisee anymore, you have to consider how to sell the business, the return on your investment, and what limitations, if any, the franchise agreement imposes on when, where, and how you can sell your franchise. Of course, when a franchisee has a relationship problem with a franchisor that he can’t work out, a franchise lawyer can sometimes aid in the resolution of the problem.”