(914) 265-4100. jl@lusthauslawpc.com

Franchise Matters

If you think you may have accidentally sold a franchise in violation of law, you will want to contact knowledgeable franchise counsel immediately as there may be severe consequences. Depending on the jurisdiction, the government can seek preliminary and permanent injunctions and impose civil penalties against the franchisor and you, the owner.

You are a successful restaurateur, managing and running multiple eateries in multiple locations for several years. You started with a single location. It opened and was a hit. So you opened a second restaurant in a different location which turned out to be just as popular.

You've just acquired a franchise and suddenly you are part of a much larger organization. Or are you? Are you one voice among many or are you an integral part of a cohesive, integrated group? How do you make your voice heard? Who do you call with questions? How do others in your organization get things done? Negotiate terms? Get the attention of the franchisor?

Visit the dairy counter of any supermarket and what do you see? Gallons of milk, cartons of yogurt, cheese, etc. Each carries a clearly marked price tag: $1.99, $0.75, and so on. What you don't see are the extra costs that show up when you check out at the register. Extra costs like sales tax, or, paper/plastic back fees charged in states requiring shoppers to bring their own grocery bags.

Buying a franchise? History matters. And in this instance, history means references. So check them out. Really. Checking references -- contacting others currently in your franchisor's stable, or who have left the franchise system for one reason or another is a key piece to avoiding post-purchase, buyer's remorse.

Neither federal nor state franchise laws prohibit franchisors from negotiating franchise agreements with franchisees. So, when the franchisor's salesperson says it is against the law to negotiate, they are...not telling the truth. Franchisors can always negotiate their franchise agreements and many do. But whether or not your franchisor will negotiate and to what extent, depends on many factors.

Sellers typically decide they want to sell. Sometimes they hire a broker as an intermediary. Sometimes they don't. But ultimately, for every seller, a buyer is found. That buyer investigates the opportunity proposed, makes an offer, and then the parties retain counsel to draft and negotiate an agreement. 

Looking to expand your business? What's the best strategy? License your trademark? Or franchise the entire business process? How do you distinguish between these two options?
The first step to making an informed decision about whether to grow your business by licensing or franchising is to understand the difference between the two legal structures.

If you have a successful business that can be duplicated and you want to expand your geographic reach, you will want to consider franchising. Generally, franchising is a method whereby the franchisor gives franchisees a license to use its brand, i.e. trademarks, and systems for operating the business in return for the payment of a fee. When thinking of franchise systems, most consumers think “burgers and fries.” 

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