Like any small business opportunity, franchises entail a number of financial, operational and personnel tasks. However, attempting to cover all these items alone would be a fool?s mission, especially when it comes to understanding legal documents, such as agreements and system regulations and rules. Furthermore, comprehending how these documents are created and updated from a franchisor?s point of view will help franchisees ensure they are getting the best deal when they invest in a franchise opportunity.
Recently, Dave Hood, a franchise consultant and president of iFranchise Group, spoke about trends and common concerns that apply to franchisors, especially in regards to the management of franchise legal documents and systems.
When asked what advice he would give new and existing franchisors who are in the process of creating franchise legal documents, Hood recommended that they begin by examining and even benchmarking the practices of other franchise systems, particularly those within the same industry. This advice is also applicable to prospective franchisees who are in the process of system selection.
By comparing franchisors? agreements and disclosure documents, buyers can get a good idea of the important differences between systems, such as levels of support or independence. However, trying to understand these documents without legal assistance would probably prove too difficult for most prospective franchisees, as even franchisors have probably worked with experienced attorneys when drafting and modifying these documents.
?Franchising is highly regulated, and it?s critical to work with lawyers with ample experience in franchise law to avoid potential pitfalls,? Hood said in a statement.
Hood also identified a few ?hot topics? in franchise law for franchisors to keep in mind when updating and crafting their documents and agreements, and thus for franchisees to turn an eye to when reading them.
First, Hood advises franchisors to follow state laws and any changes they may see in regards to taxation and employment. For example, Hood cites a recent Iowa Supreme Court decision that allows that state to tax out-of-state franchisors because they have franchisees in the state.
Secondly, franchise documents are receiving a higher degree of scrutiny, according to Hood, especially in how they establish the legal relationship between the franchisor, franchisees and their employees.
?Recent cases show that some local courts look beyond contract language and closely examine the actual business structure; so, in addition to including appropriate language in the Franchise Agreement, franchisors have to truly treat franchisees as independent operators,? said Hood.
Franchisees who are searching for a legal advisor may ask fellow unit owners to find a professional with experience in the field.
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