1851

Thinking about diving into the world of franchising? Before you take the plunge, it's crucial to understand the legal side of things. From the nitty-gritty details of franchise agreements to the importance of franchise disclosure documents (FDDs), having a handle on the key legal terms involved is essential.&nbsp;“Opening a franchise can be a good option for many entrepreneurs, but you need to consider a few things before you sign on the dotted line, if you will,”&nbsp;<a href="https://www.linkedin.com/in/benjaminmichael3306/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=legal-literacy-for-franchise-success-2725772" target="_blank" rel="nofollow">Ben Michael</a>, founding attorney of Michael &amp; Associates, Attorneys at Law, told 1851 Franchise. “Firstly, you're beholden to the parent company, or the franchisor, for what's acceptable and what's not when it comes to how you run your business. For some entrepreneurs, this is great. For others, this is going to cause friction in the future.”Franchisees need to understand that they are required to pay fees and make requests to open more than one location — and the franchisor has the final say in every major business decision.&nbsp;“Before you decide to open a franchise store, you need to see the FDD,” Michael said. “This will give you the history of the franchise, all the fees you're required to pay in order to become a franchisee, as well as pertinent information such as contractual obligations and data from other franchises under the parent company.”Additionally, the FDD will outline special circumstances to the relationship between franchisee/franchisor. And if the parent company can't provide this report, Michael says you should pass on opening a franchise with them.&nbsp;“A franchisor needs to be available to answer any and all of your questions before you enter into a contract with them,” he said. “If you have any doubts, it's worth consulting a lawyer to make sure the contract is something you want to sign.”With that said, here are a few key legal terms to familiarize yourself with before getting into franchising:&nbsp;Franchise Agreement: A legally binding document that delineates the terms and conditions governing the interaction between the franchisor and the franchisee, covering aspects such as fees, royalties, territory rights, and the duration of the franchise.Royalties:&nbsp;Ongoing payments made by the franchisee to the franchisor, typically calculated as a percentage of the franchisee's gross sales, compensating the franchisor for the continuous use of its brand, ongoing support, and the benefits derived from the established business model.Territory:&nbsp;The geographical area where the franchisee is granted the exclusive right to operate, defined within the franchise agreement to prevent conflicts with neighboring franchisees and ensure a fair distribution of market opportunities.Initial Franchise Fee: A one-time payment made by the franchisee to the franchisor, granting the franchisee the right to use the franchisor's brand and including initial training and support.Renewal Terms:&nbsp;Provisions within franchise agreements that outline the conditions for renewing the franchise relationship after the initial term expires, crucial for long-term planning and exit strategies.Trademark: A legally registered symbol, logo, or name representing the franchisor's brand. Adherence to guidelines for trademark usage is imperative for maintaining brand consistency and integrity.Franchise Disclosure Document (FDD): A comprehensive informational document provided by the franchisor to potential franchisees that contains vital information about the franchise system, financial performance, legal obligations and special circumstances to the franchisee/franchisor relationship.Termination Clause:&nbsp;A part of the franchise agreement that outlines the conditions under which either party can terminate the franchise agreement, critical for managing potential risks and disputes during the franchise relationship.For more information on the legal aspects of franchising, check out these related articles:&nbsp;<ul><li><a href="https://1851franchise.com/the-key-legal-terms-you-need-to-know-in-franchising-2724717">The Key Legal Terms You Need to Know in Franchising</a></li><li><a href="https://1851franchise.com/what-are-the-legal-risks-of-owning-a-franchise-business-2723320">What Are the Legal Risks of Owning a Franchise Business?</a></li><li><a href="https://1851franchise.com/understanding-franchisee-bankruptcy-and-its-implications-for-franchisors-2725252">Bankruptcy: Implications for Franchisors</a></li></ul>

Franchise Legal Literacy: Franchise Agreements and FDDs

1851 Franchise

From deciphering franchise agreements to grasping the significance of franchise disclosure documents, legal literacy serves as a cornerstone for franchise success.

Legal Literacy for Franchise Success

legal-literacy-for-franchise-success

Fitness Premier

Fitness Premier: A Legacy of Excellence, Built on a Foundation of Fitness

fitness-premier-a-legacy-of-excellence-built-on-a-foundation-of-fitness

Busy Bee Jumpers

From Solo Hustle to Franchise Muscle: Why Converting to a Busy Bee Franchise Just Makes Sense

busy-bee-jumpers-franchise-conversion-opportunity

Paris Baguette

Paris Baguette Franchise - Anusha Jonnala and Swapna Varala - 1851 Franchise

Blending Tech, Hospitality and Health Care: How Three Women From Different Worlds Came Together to Build a Paris Baguette Franchise

paris-baguette-franchise-flower-mound-texas

Minuteman Press International

The Brown Family and team at Minuteman Press in Rancho Cucamonga, CA.

Minuteman Press Franchise Review: 30-Year Legacy in Rancho Cucamonga

minuteman-press-franchise-review-30-year-legacy-in-rancho-cucamonga

Beansquad

BeanSquad Franchise - How BeanSquad Is Taking the Stress Out of Franchise Bookkeeping - 1851

How BeanSquad Is Taking the Stress Out of Franchise Bookkeeping

beansquad-accounting-franchise-bookkeeping

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

Design with person in blazer, with laptop, holding sign that reads "LOOKING FOR A JOB"

Uptick in Jobless Claims Points to Continued Instability in Labor Market

jobless-claims-franchise-growth

Extraordinary Brands Acquires CycleBar and Rumble, Shaking Up Boutique Fitness Franchising

extraordinary-brands-cyclebar-rumble-boxing-acquisition

NJCAR v. Ford - New Jersey Supreme Court Limits Standing Under Franchise Practices Act

New Jersey Supreme Court Limits Standing Under Franchise Practices Act

new-jersey-franchise-practices-act-njcar-v-ford

Planet Fitness Franchisees Donate $100K to Support Texas Flood Relief - 1851 Franchise

Planet Fitness Franchisees Donate $100K To Support Texas Flood Relief

planet-fitness-texas-flood-relief

McDonald’s Is the Latest Franchise To Bet Big on Beverages with 500-Store Premium Drink Test

mcdonalds-is-the-latest-franchise-to-bet-big-on-beverages-with-500-store-premium-drink-test

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

Rising Jobless Claims Could Signal Challenges — and Opportunities — for Franchising

rising-jobless-claims-affect-franchising

"Come in, We're OPEN" sign against abstract background

Small Business Optimism Dips, Raising Concerns for Franchise Owners

small-business-optimism-dips-raising-concerns-for-franchise-owners

Wendy's CEO Kirk Tanner Steps Down - Breaking News - 1851 Franchise

Wendy’s CEO Kirk Tanner Steps Down Amid Challenges, Leaving Franchisees Facing Uncertainty

wendys-ceo-transition-kirk-tanner-franchisee-uncertainty

Hely and Hiral Patel Bring Their Longtime Dream to Life With The Brass Tap

brass-tap-franchise-pasadena-maryland-hely-hiral-patel

1851 Keyword - The Secret To Succeeding With a Part-Time Franchise Is Picking the Right Model

The Secret To Succeeding With a Part-Time Franchise Is Picking the Right Model

part-time-franchises-picking-the-right-model

Why This Real Estate Broker Decided To Bring Caring Transitions to Central Texas

caring-transitions-san-marcos-kyle-chad-hardin

911 Restoration Franchise Costs, Fees, Profit and Data for 2025

Legal Literacy for Franchise Success

MORE STORIES LIKE THIS