Franchise Law, Franchise Agreements, and Dispute Resolution

Disputes between business partners can stall even the most successful company, and franchising is no exception. When drafting a franchise agreement, a franchisor and franchisee should consider dispute resolution to avoid interfering with business operations when misunderstandings crop up. You should involve a franchise dispute attorney if you’re starting out or if you’ve been operating without a comprehensive dispute resolution mechanism.

Your business interests and legal rights will be protected if you involve a franchise dispute attorney from the get-go. A franchise dispute attorney can help a business avoid costly lawsuits to reconcile disputing business partners without going to court.

What is franchising?

Franchising refers to a relationship between an existing business (franchisor) and an investor (franchisee). The franchisee pays an agreed fee and acquires exclusive rights to operate under a similar company using the franchisor’s name or trademark. Franchising is governed by franchise law.

Franchise Law and Franchise Agreements

Franchise law is a combination of state and federal laws for governing franchises. It addresses different aspects of franchising, including offer, acceptance, business relationships, operations, trademark, terms of sale, and much more. Franchisors should issue a pre-sale disclosure in a Franchising Disclosure Document (FDD) to prospective buyers 14 days before any commitment is signed. In some states, franchisors must provide state disclosures and federal-level disclosures.

 A franchise agreement is akin to a franchise constitution because it comprehensively outlines rules, rights, duties & responsibilities, and much more about the business. In simple language, a franchise agreement governs the working relationship of a franchisor and the franchisee. The components of a franchise agreement can include:

• Obligations and duties.
• Permissions, particularly for the franchisee.
• Restrictions and rights of the franchisee.
• Initial franchising fee payable.
• Trademark details.

Common Franchise Disputes

Franchise disputes arise when either party tries to protect their interests causing conflicts or misunderstanding. Common franchise disputes include:

• Pre-sale misrepresentations.
• Compliance disputes.
• Infringement of rights and privileges.
• Financial fraud.
• Termination disputes

Best Practices for Prospective Investors

Seek Legal Help when Starting Off

The advice of a franchising attorney is invaluable when establishing a franchise; they’ll ensure you get a fair deal and avoid exploitation.

Ensure the franchise agreement is clear

Most franchise agreements are ambiguous, and the partners only realize when disputes arise. The terms & conditions and all other aspects of the business should be clearly outlined to avoid future confusion.

Compliance is your Best Friend

Most people discover shortcuts that can be disastrous after acquiring some experience. Franchising involves a learning curve, but it will be worth it in the end.

Business partners should resolve disputes as fast as possible because unresolved issues can affect the business. A franchise lawyer ensures their client’s business interests are safeguarded for smooth operation.