Understanding Legal Issues Surrounding Franchising

Choosing to buy a franchise rather than starting your own business can have a lot of advantages, and the franchiser running certain things can certainly simplify your operation. On the other hand, it can also be considerably more complicated in some ways, one of which is the tangle of legal issues that is particular to buying a franchise. Many sources strongly recommend that you acquire a franchise lawyer when you are thinking about buying a franchise to help you mine through these legal issues.

One of the most important documents you will have to figure out is the UFOC (uniform franchise operating circular) which the franchiser is required to create by the Federal Trade Commission. This UFOC discloses a number of things about the franchiser and the business they are selling you, including what they do, their business experience, the fees you can expect to pay, what kind of investment you will have to make, and whether or not they have been involved in any lawsuits. Reading this document can tell you a great deal about a franchiser, and understanding it will help you decide whether buying their franchise is right for you.

Another document that you need to pay close attention to and may need a lawyer to help you understand is the franchise/legal agreement, which will spell out your and the franchiser’s rights and obligations. This will tell you things like how long the franchise agreement is for, how you can use their trademark, and what can cause the agreement to be terminated.

As you are reviewing these documents, make sure to pay close attention to how much control the franchiser has over the operation of your business, which can certainly vary based on the industry and company. If you are unwilling to cede a lot of control, make sure to select a franchiser that fits that need, and make sure you understand what the franchiser is offering in their documents in terms of how much control they will have in managing your business, because if you run into conflicts with them about the operation of the business later, you want to be sure you knew what you were getting into.

You should be suspicious of any franchiser who does not want you to understand these legal documents. If they try to dissuade you from getting a franchise attorney or from reading them thoroughly, you might reconsider whether or not you want to do business with them. A good franchiser will have nothing to hide in these documents, and will want you to read and understand them completely.

Understanding the UFOC and franchise agreement of a franchiser is not enough, however. You will need to do a lot more research and homework before deciding to buy a franchise. Some other things you might do to help you figure out if you are getting a good franchise are to talk to current franchisees and to avoid anything that seems too good to be true. Being smart about buying your franchise can help you avoid big pitfalls, legal and otherwise.