FAQ

What is a franchise?

A franchise is like a license that lets the franchisee, the person who buys the license, use the franchisor's name and trademarks to open a business using the same system as the franchisor to sell the same products and services. In exchange for the payment of an initial franchise fee and ongoing royalties, the franchisor provides some guidance on how the franchisee should run the location.

What is a franchise agreement?

A franchise agreement is a contract between the franchisor and the franchisee that sets forth the terms, conditions, rights, and responsibilities of the relationship between both parties. The franchise agreement will usually include terms regarding the license rights that the franchisee has in the franchisor's trademarks and intellectual property.

What is a franchisor?

A franchisor is the company selling the right to other individuals or entities to use its trademark and system to sell products or services.

What is a franchisee?

A franchisee is an individual or entity that buys the right to use the trademark and system of a franchisor to sell certain products or services.

What is a franchise disclosure document ("FDD")?

 The Federal Trade Commission requires that a franchisor give its franchise disclosure document to potential franchisees. The document contains 23 disclosures, including information about initial fees, ongoing fees, and territory details. A franchisee must receive the FDD within 14 days before signing the franchise agreement or writing a check to the franchisor. 

What is the difference between the franchise agreement and the FDD?

The franchise agreement is the binding contract between the franchisor and the franchisee. It contains the terms and conditions that bind the parties. The FDD includes extra information that the franchisor must provide to potential franchisees about the franchisor and the franchise system. Still, it is not a binding contract and does not contain the terms and conditions that bind the parties. Note, however, that a template franchise agreement is incorporated as an exhibit within the FDD.

What is a multi-unit agreement?

A multi-unit agreement is a contract signed between a franchisee and a franchisor where the franchisee agrees to sign a certain number of franchise agreements within a certain number of months or years. Typically, the franchisee agrees to sign the next deal for the following franchise location when the location for the currently executed franchise location is open and operating for business. Franchisees typically pay the initial franchise fees upfront for the total number of units purchased in the multi-unit agreement when they sign the multi-unit deal. Therefore, most franchisors offer a discount for franchisees who agree to execute a multi-unit agreement, which results in a reduced initial franchise fee per location.  

What is a development agreement?

A contract between a franchisor and a franchisee who agrees to be a developer for the franchise over a particular area. Typically, in a development agreement, the franchisee will agree to open or "develop" a decided-upon number of franchise locations within the development area within specified time frames.

What is an area representative agreement?

A contract between a franchisor and a franchisee where the franchisee is given the rights to (i) buy franchise locations within a particular area, and (ii) sell other franchisees locations within that area.

Why do I need an attorney to review my franchise documents?

Franchise documents are unlike most other contracts in that they are not very negotiable. An experienced franchise attorney will know what terms in your franchise documents can be negotiated, if any, and what cannot be negotiated. Even if your franchise attorney cannot negotiate any changes to the documents, your attorney has another critical job to do on your behalf:  educate you on the content of those documents.

Why do I need an attorney to review my commercial lease?

Unlike your franchise documents, your commercial lease is highly negotiable, and many changes can be made on your behalf. Most commercial leases are written to be one-sided in favor of the landlord and must be amended to make them fair and mutual between the landlord and the tenant. A properly negotiated lease can save a tenant money and time in the long run. A real estate attorney that understands commercial leases is important 

Why do I need an attorney to represent me for the sale of my business?

A transactional attorney who regularly represents clients in these transactions will understand the standard terms necessary in a sales contract and make sure that your sales documents are complete to minimize any disputes after closing. You will also want to be able to share documents confidentially throughout the due diligence process, and your attorney can advise you on the best way to make that happen. Furthermore, your business attorney, with the help of your CPA, will help with the tax implications of the sale in your jurisdiction.

Why do I need an attorney to represent me for an acquisition of a business?

A transactional attorney can help protect you against purchasing a company or its assets riddled with liens or security interests. No one wants to find out that the assets that they have bought really belong to someone else. A good business attorney will be protecting you against bad outcomes like this, far before the closing.

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