Franchises are legally complicated relationships between a franchisor and a franchisee. The franchisor is the company that owns the brand and intellectual property rights to the business being used by others. The franchisee is a person or business that obtains a license to use the brand and intellectual property of the franchisor. A franchisee typically needs to apply to become a franchisee by presenting financial information and a resume, showing that the franchisee will operate the business successfully. If approved, the franchisee will receive a franchise agreement from the franchisor, which is generally over 100 pages of legalese and then potentially another 100 pages of financial and business data. Some franchise agreements then have another 100 pages consisting of addendums that have been added over the years. Applicants absolutely need a skilled franchise lawyer to navigate these documents.
Understanding Franchise Agreements
As a franchise attorney, I have reviewed many franchise agreements. Each franchise agreement has a similar purpose: to ensure that the intellectual property and branding are owned by the franchisor, to ensure that the IP and brand are being represented properly by the franchisee, to establish the level of control the franchisor will have over the operations of the franchisee’s business, and to detail the fee agreement. The franchise agreement must also disclose a certain amount of financial data from the franchisor in order to comply with securities and investment laws.
Intellectual Property and Brand under a Franchise Agreement
A franchisee will use the brand and trademarks of the franchisor. The franchisee will also have access to the intellectual property, proprietary equipment or software, training, and operational methods of the franchisor. The franchisor will essentially be establishing a new location and training the franchisee to become a manager of that location.
Level of Control under a Franchise Agreement
Franchise agreements vary in how much control they give to franchisees. Some franchise agreements control business development and marketing, leaving operations under the control of the franchisee. Some franchise agreements are so controlling that the franchisee is essentially buying a job. A top franchise attorney will help you understand the difference in your agreement and negotiate on your behalf.
Fees under a Franchise Agreement
Fees are one area you absolutely need a franchise lawyer to analyze the franchise agreement. Fees come in many different forms; including royalties, initial franchise fees, vendor fees, marketing contributions, lease payments, taxes, operational systems, licenses for proprietary information and systems, employment/wages etc. Unfortunately, there is never a section in the lengthy agreement that compiles all of the fees for your understanding. That is one thing I do as a franchise attorney to help my clients understand all of the costs involved so my clients have a full picture of the potential profitability of the franchise.
I went to law school at Capital University in downtown Columbus. There, I became the first person in school history to graduate the program (a 3-year program) in just 2 years while on the Dean’s list. I started my firm straight out of law school after marrying my beautiful wife and passing the bar exam. Now, I represent businesses in litigation, draft transactional documents, provide legal advise to business owners, and represent them in transactional negotiations.