Just like state and federal laws that govern the disclosures and registrations required in a franchise system, state and federal laws govern the sales process and your relationship with franchisees too.
Franchising is a highly regulated form of business, subject to state and federal laws regarding the disclosure and registration of franchise systems, the sales of franchises, and the ongoing relationship with franchisees. The Larkin Hoffman Franchise Team will provide detailed guidance on sales compliance as well as ensure each potential transaction with a franchisee complies with applicable laws.
The biggest difference between operating a company-owned outlet and franchising is that in the former, you are selling products or services to consumers, but in the latter, you are selling franchises to prospective franchisees who in turn sell products or services to consumers.
Once your franchise offering is registered where required, and you have an updated Franchise Disclosure Document, Franchise Agreement, and ancillary contracts in place, you can start offering and selling franchises in the those of the 14 registration states where your franchise offering is registered as well as in the 36 non-registration states.
There are numerous rules governing what you can and cannot say and do during the process of selling a franchise. First, in states that require registration of a franchise offering, you cannot offer for sale a franchise unless the franchise offering is registered and has not expired. Further, state and federal law require that a prospective franchisee be furnished a copy of the Franchise Disclosure Document, Franchise Agreement, and ancillary contracts several days (up to 14 calendar days) before they can sign and purchase the franchise.
Some franchisors use third-party brokers to sell franchises. Many franchisors also advertise in publications, at trade shows, and on the internet their franchise offerings (subject to state laws on registering advertisements).
Default, Termination, Transfer, & Non-Renewal
Some states also have “relationship laws” which govern the relationship between the franchisor and existing franchisees. These relationship laws vary state by state, but usually regulate
- whether the franchisor can make changes to the franchise system during the term of a Franchise Agreement, whether the franchisor can terminate a franchisee early for breaches of the Franchise Agreement (and whether the franchisor must give the franchisee a “cure period” to try and correct the breach),
- whether a franchise must be renewed when it expires, and
- what types of practices the state deems “unfair” (e.g., clauses in your Franchise Agreement that discriminate among franchisees).
Contact the Larkin Hoffman Franchise Team for assistance in handling franchisee defaults, terminations, transfers, and non-renewals under state franchise laws.
Negotiations & Disputes with Franchisees
Franchising is a business relationship, so it is inherit that disputes between a franchisor and its franchisees may arise. The Larkin Hoffman Franchise Team has experience in handling default notices, negotiated settlements, mediations and arbitrations, and litigation with franchisees. Prospective franchisees may also attempt to negotiate the terms of a Franchise Agreement or ancillary contracts with you.