Legal & Compliance

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It is crucial to the success of your franchise operation that the franchise structure and relationship be properly established. This involves careful analysis and guidance from an experienced franchise attorney and franchise consultants. Understanding the synergy that exists between their respective roles, our franchise attorneys and consultants work together throughout the franchise development project to create the ideal franchise system for your company.
It is important to note that FranSource’s independent franchise attorneys fully represent our clients under a client-attorney relationship. Averaging 25+ years’ experience, they are well qualified to assist and advise you concerning your franchise structure and relationship, state registrations, compliance issues, international expansion and other similar matters.
Below is an outline of various legal services provided by our franchise attorneys. Many of the legal services are included as part of our comprehensive Franchise Essentials Development Program. If you would like to schedule a free consultation with a franchise attorney, please complete our Free Consultation Form.

The Franchise Disclosure Document & Franchise Agreement

The FTC requires 23 “items” to be disclosed in the Franchise Disclosure Document concerning the franchise company and provisions contained in the Franchise Agreement. We fully assist you in establishing the terms of the franchise relationship and completing our proprietary questionnaires to help ensure that all aspects of the franchise business are fully identified and properly disclosed. The FDD, Franchise Agreement and Exhibits are prepared by Counsel in conformance with the FTC Franchise Rule. This enables your company to begin granting franchises in 36* “non-registration” states upon completion of the documents. Fourteen states have individual franchise registration requirements that must be completed prior to soliciting and selling franchises in these states.

* Five of the 36 “non-registration” states require the filing of a simple “exemption form.” Six states (CT, GA, LA, ME, NC and SC) have requirements that must be met if a franchisor does not have a federally protected trademark (a state registered trademark is accepted by GA, LA and SC). The requirements may include filing under each state’s Business Opportunity Laws. if you do not have a federally protected trademark (which is common with new franchise companies), please contact us for additional information.

Exhibits to the Disclosure Document & Franchise Agreement

The following Exhibits to the Franchise Disclosure Document and Agreement are prepared by Counsel:
  • Deposit Agreement
  • Confidentiality & Non-Competition Agreement
  • Development Agreement (see “Developer Program” below)
  • Site Selection Addendum (if required)
  • Agreement With Landlord (if required)
  • Telephone Number & Directory Advertising Assignment Agreement
  • Operations Manual Table of Contents
  • Franchisee Closing Questionnaire
  • List of State Administrators
  • List of State Agents for Service of Process
  • State Specific Addenda to the Disclosure Document
  • State Specific Addenda to the Franchise Agreement
The State Specific Addenda to the FDD and Franchise Agreement are prepared by Counsel to ensure compliance with individual state franchise laws when registering in the 14 Registration States. The State Specific Addenda address individual state franchise laws and regulations that vary from the FTC Franchise Rule relative to specific provisions of the Franchise Agreement and/or FDD disclosure requirements. These documents help expedite the registration process.

Developer Program

A Developer Program permits a franchise company to sell multiple franchises to a single franchisee for development over a prescribed time period. A percentage of the franchise fee for each franchise to be opened is typically paid in the form of a Development Fee upon execution of the Development Agreement. As part of the preparation of the Franchise Disclosure Document, we advise you concerning the structure and requirements for the Developer Program. Counsel then prepares a Development Agreement as an Exhibit to the Franchise Disclosure Document. This ensures that disclosure requirements are met and multi-unit opportunities are immediately available to prospective Franchisees.

Nondisclosure Agreement

To help ensure the protection of your confidential and proprietary information, we prepare a Nondisclosure Agreement for use during the franchise sales process. The nondisclosure is typically provided to prospective franchisees early in the process to enable you to share information that may be confidential in nature.

State Exemption Filings

Of the 36 non-registration states, five states require Franchisors to complete an “exemption filing” prior to commencing the sale of franchises in their state. The filing is required under each state’s business opportunity laws. We prepare an exemption package for filing in the five states prior to the launch of your franchise. The states include:
  • Kentucky
  • Utah
  • Texas
  • Florida
  • Nebraska

Trademarks, Service Marks & Copyrights

As part of the franchise legal document preparation, counsel will advise you concerning trademarks, service marks and copyrights that your company may license to Franchisees. If required, we assist in filing copyright and trademark registrations on your behalf.

Franchise Support Services

We consult with you concerning the types of support services that should be provided to Franchisees during the pre-opening period and once their franchise is operational. We also advise you concerning additional support services that may be required as the franchise grows. This ensures that proper disclosures are made while permitting you to make modifications to the types and amounts of support provided to Franchisees as changes to the system are made.

Franchise Reporting Requirements & Performance Standards

Franchisees are typically required to provide information to the Franchisor regarding sales, financial data, income and sales tax returns, and other information specified by the Franchisor. We advise you concerning appropriate reporting requirements relative to the franchise business and your operation. In addition, we provide recommendations regarding minimum performance standards, revenues and/or inventory purchasing requirements when appropriate. When performance standards and/or inventory purchasing requirements are implemented, they are included in the Disclosure Document in compliance with the FTC Franchise Rule.

Exclusive Territories

Franchisors may grant an “Exclusive Protected Trade Territory” in which to operate the franchise. Our franchise attorneys advise you concerning the criteria and system to be used to establish exclusive territories. The FDD and Franchise Agreement outline the territory criteria and identify the Franchisee’s rights to the territory.

Site & Location Specifications for the Franchise Business

Franchisors may choose to offer assistance to franchisees relative to selecting a site for the franchise business. Franchisors have the right to dictate the type, style, size, layout and other criteria for the franchise location. We consult with you to establish appropriate requirements and criteria for the site selection process. As part of this process, we produce a Site Evaluation Form to be completed by Franchisees. If the franchise business is home-based, we assist in determining specifications and requirements for a home office.

The Franchise Fee, Continuing Royalty Fee & Other Sources of Franchise Revenue

Using established criteria as well as statistics compiled from similar type companies, we determine the franchise fee, royalty fee, advertising and marketing fees, and other fees appropriate to the franchise operation. We also provide recommendations and considerations related to other possible sources of franchise revenue, including promotional fees, administrative fees, regional and national advertising fees, product sales, training and field support fees, and other franchise services.

Legal Compliance

FTC sales disclosure requirements are reviewed to ensure compliance with federal franchise laws and regulations. In addition, we produce a comprehensive Guide to Executing the Franchise Documents for use by your Development Team to help ensure compliance with federal and state laws and regulations related to the offer and sale of franchises.

Registration State Filings

Our attorneys prepare applications and documentation for filing the Company’s franchise in one or more of the Registration States. The Registration States require that a franchisor be “registered” prior to offering or selling franchises in the state.

Master Franchise Program

We advise you concerning the appropriate structure, requirements, and policies for implementing a Master Franchise program. One form of a Master Franchise program permits the company to grant a Franchisee the right to act in a “sub-franchisor” capacity within a Master Development Territory. The “Master Franchisee” (or “Sub-Franchisor”) is granted the right to open and operate individual franchises, as well as offer other individuals the right to operate franchises within the Territory. The Master Franchisee may be responsible for qualifying, selling, training, and supporting the franchises within their Territory to all or some extent. A Master Franchise fee is typically charged based on a number of variables. Franchise fees and royalties generated from “sub-franchises” within the Territory may be shared by the Franchisor and the Master Franchisee. Our franchise lawyers prepare the Master Franchise Agreement and Sub-Franchise Agreement as exhibits to the Disclosure Document or within a separate Disclosure Document, depending on the client’s preference. Please contact us for additional information.

Cooperative Advertising Agreements

Cooperative Advertising Agreements are executed between franchisees in a designated geographic area when the opportunity exists to pool resources to advertise and promote multiple franchises. The co-op is typically managed by members of the co-op Board, who are franchisees elected by the participating members. The Franchisor normally determines when an Co-op should be formed for a specific marketing area. When required, we prepare a Cooperative Advertising Agreement that ensures the advertising co-op relationship is properly structured and implemented between participating franchisees.

Supplier & Vendor Agreements

It is critical that the relationship between your company and its vendors and suppliers be properly structured and protected from competitors. When required, our franchise attorneys will draft supplier agreements to protect the company’s relationships with its vendors and suppliers.

OTHER SERVICES