What are the basic elements of franchise business setups?
Establishing a new unit is a different process in every business, whether a new venture or an expansion. The narrative is similar to a franchise business. Franchisee businesses often have different operational and functional objectives based on geographical and territorial perspectives, which every state and federal law governs for their respective boundaries. Therefore, the probability of legal mishaps stays high, coupled with inter-party disputes that may also arise.
While a franchise business’s only goal is to expand a business unit in a different location to generate business and effective recognition, these business opportunities require the franchisors to comply with several franchise laws. Following the laws is crucial to protecting the business unit from disputes before and after the setup. Thus, they must have a franchise lawyer on board who understands franchise laws and how the business can operate effectively without violating any laws.
What regulates the franchisee operations?
Most states have introduced franchise laws, effectively managing the franchises set up in their territories. The FTC rules govern the establishment of franchise businesses in any state. In all states, the FTC rules bind the franchisor to furnish prospective franchisees with material information and data regarding the business before signing any agreement.
The information is in a prescribed format legally known as a Franchise Disclosure Document (FDD). The FDD sets the rules and terms of business operations according to business law, stating all-inclusive and exclusive factors in the franchisee business. Generally, the rule states that:
- The franchisee will be granted the right to offer, sell, or distribute goods or services under a marketing plan or system largely recommended or prescribed by a franchisor.
- The franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol identifying the franchisor or its affiliate is closely linked to the franchisee’s business operations under such a plan or system.
- Indulging in such collaboration, the franchisee will pay the franchisor or the person in charge directly or indirectly fees of $500 or more.
What must a franchisor do?
The franchisor must adhere to certain additional business and legal aspects of franchising before starting the franchise business, in addition to registration and the mandatory presentation of the necessary information to the potential franchisee, such as:
Registration of trademark
Trademarks are intangible assets for a company or an individual that requires legal protection under trademark laws. Therefore, franchisors should pursue the federal registration of all trademarks, service marks, trade names, logos, domain names, and other commercial symbols with the United States Patent and Trademark Office. It will protect against any misuse, potential infringers and registration of similar trademarks by the franchisee.
Copyright protections
Any unique form of authorship work fixed in any tangible medium of expression must be protected from misuse and infringements. The copyright act protects any literal work in any form, such as music, graphic designs or motion pictures, audiovisual works, and architectural works. Franchisors should register copyrights and protect any intangible damage in the franchise business.
Legal compliance
Franchisee compliance is a broad term, often misunderstood, with common factors to incorporate with franchise agreements. Moreover, a franchisor must comply with all other components of the franchise laws, including:
- Registration with a broker franchisee, which is an optional attribute in many states,
- To protect confidential information, including know-how and trade secrets, with federal and state statutes and common law.
- However, registration of FDD with regional authorities is essential in every state but must be complained if required.
Domain-specific clauses
Additionally, it is advised to draft domain-specific clauses into FDDs and franchise agreements carefully, and franchisors should take precautions to guarantee they keep control of their domain names.
Franchisors can either control the rights to a specific domain and grant the franchisee a license to use the sub-domain for the duration of the franchise relationship, or they can have franchisees agree in writing to transfer their domain rights to a specific domain at the time of franchise termination.
The role of a franchise lawyer in franchise business setups
As the franchise business has to adhere to several laws, ranging from lenient to strict, the requirements of a franchise lawyer stay on the table for all parties involved. Here is how a franchise lawyer can help them set up with the following assistance:
Drafting and reviewing the FDD
A franchisee lawyer drafts and reviews the FDD and franchise agreement to protect the franchisor’s and franchisee’s rights and ensure their compliance with franchise laws.
Legal compliance
A franchise lawyer’s major duty is to ensure that the franchise business complies with the statutory and federal laws. He also discloses and adapts operational rules for the franchise business.
Negotiating lease terms
An experienced franchise lawyer helps negotiate the lease agreement to satisfy both parties, align with the agreement, and yield a favorable franchise outcome for both parties.
Specialized franchise lawyers ensure opportunities and growth in every franchise operation. His skilled representation provides additional hands in acquiring the best business opportunities for both parties. An experienced lawyer can help establish a profitable franchise business for franchisor and franchisee.
