Buying a franchise is a process, not an event. Franchisees do not walk into a franchise convention, pick out a franchise and make a purchase. Franchises are not flat-screen televisions. The process for buying a franchise takes months, if not years, and potential franchisees should understand the process. But when is the right time to engage a franchise attorney to assist? Before getting to the answer, it is important to understand the process of buying a franchise.
Find Some Concepts. The first step is to find some great opportunities. You can learn about potential franchises through a variety of sources, including the internet, trade shows, magazines, newspapers, radio, television, word of mouth, and visits to corporate stores and franchised outlets. Many franchisees also engage franchise consultants, who can assist them in making a good match. Regardless of how franchisees learn of an opportunity, the first step is to narrow the field to one or more potential franchises.
Begin Gathering Information. After narrowing the field, you should gather as much information as possible about each franchise. As information is learned about each franchise, you may drop or add additional franchises to your “preferred list.” But the key is to tap as many sources as possible. This includes talking to the franchisor and other franchisees, although you should keep in mind that existing franchisees may not always give accurate information if they feel their statements will be repeated.
Obtain FDDs. As part of the process, you will make an application to the franchisor. If the franchisor believes you are a good fit, you will receive an FDD (Franchise Disclosure Document). The FDD contains more than 20 categories of information, including information regarding the franchise, its owners, prior litigation, numbers of outlets, your legal obligations, and other pertinent information, including copies of any agreements you will be required to sign and potential information about earnings. This information must be reviewed very carefully. Under the law, franchisees are not permitted to sign a franchise agreement until at least 14 days have passed. However, there is no requirement to sign the agreement on day 15, so keep this in mind if the franchisor applies pressure.
Discovery Day. Another important part of the process is typically named “Discovery Day.” This is an important part of the franchise sales process because it allows you to ask questions in a group setting, usually at the franchisor’s headquarters. If you attend a Discovery Day, you should try to have at least one private meeting with the franchisor, so that you can ask specialized questions that may not be suitable for a group. Franchisors may be willing to make certain concessions for you, but may not want to commit to those concessions when a large audience is present.
So, given the above, when is the best time to engage counsel to assist? Stay tuned for my next post.
If you have any questions about this topic or any other franchise law issue, please contact Brian Loffredo at
ABOUT BRIAN LOFFREDO
Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
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