Does a Franchisee Need an Attorney? with Laura Canada Lewis

By: Laura Canada Lewis

Franchise disclosure documents are hard to read. It is difficult for franchisees, it is difficult for franchisors, and can even be challenging for attorneys without the necessary franchise experience.

As a franchisee, you are entering into a binding contract with a franchisor for your franchised business. If you breach this contract, you will likely lose your investment, and also risk being sued.

Start with the franchise disclosure document, which is a great resource. The FDD contains all of the contracts you will have to sign with the franchisor — including the franchise agreement, an area development agreement, personal guarantees, and amendments. To fully understand your obligations as a franchisee, you have to understand the FDD, the franchise agreement, and the franchise laws in the state where you plan to operate your franchise.

This stage in the process is when a franchise lawyer becomes very useful. An experienced franchise attorney can help you navigate and understand the FDD, the franchise agreement, and the various laws with which your business must comply. A good attorney can even help you negotiate certain terms in the franchise agreement, potentially saving you thousands of dollars throughout your franchise term.

Most potential franchisees think they can save costs at the beginning of the franchise process by simply trusting the franchisor and avoiding legal fees. However, when it comes to franchising, an ounce of prevention is worth a pound of cure. Remember, you are investing potentially thousands of dollars in a business — and this type of investment should be worth investing in good legal counsel.

How to Choose a Franchise Attorney

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   Franchise Attorneys. There is such a thing as a franchise attorney — a business lawyer who specializes in franchising. Franchising is a subsection of business law that is extremely specialized, and a small business lawyer, even a really good one, may not be sufficient. Look for a franchise and distribution law firm with an attorney who has experience reviewing franchise disclosure documents and franchise agreements. This law firm can be based anywhere in the United States, because much of franchising is dictated by federal law.
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   Experience. Pick a franchise lawyer based on his or her experience with advising franchisees. An experienced franchise attorney should advise you on the pros and cons of buying a franchise, and help you weigh the risks of the franchise business so you can evaluate whether it is right for you. A good franchise lawyer may even help you avoid fraudulent franchises.
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   Initial Consultation. Request a free initial consultation and ask: Does the attorney represent the franchise you are evaluating? Do they have experience reviewing FDDs in your industry? Are they familiar with both state and federal rules governing franchising? Do they represent franchisees?
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   FDD Review. Pick an attorney who will provide an initial review of the FDD and deliver legal advice in a written memo on a flat fee basis. You can then read the memo on your own time and return with questions. This is usually the most cost-efficient approach.
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   Start Up. Pick a franchise attorney who has experience with small businesses — one who can set up your LLC or corporation, advise on obtaining licenses, negotiate your lease, help you hire employees, and provide the legal services a small business owner needs. Having one source for these services may save money in the long run.
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   Disputes. It is highly recommended to pick a franchise law firm that also handles franchise disputes. Because franchising is a unique and highly regulated area of the law, a litigation or business lawyer may not be prepared to resolve franchise-related disputes.

Doing a bit of due diligence now can save a lot of time and prevent future problems. Legal representation may ease the complicated process of buying a franchise, and provide peace of mind knowing that someone is looking out for your interest.