How to Evaluate Legal Elements of Franchise Agreements as a Prospective Buyer

Navigating a Franchise Agreement can be confusing to the less experienced entrepreneur. With careful attention to detail, a bit of study and good online legal advice, potential franchisees and franchisors can have a good starting place to evaluate prospective Franchise Agreements before becoming contractually obligated.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Computer with Internet access

1. Evaluate territorial, output and operational requirements laid out in many Franchise Agreements for any unusually restrictive or lax issues. A prospective buyer should speak to franchisees and study all franchise documents carefully when considering purchase.
2. Research state and local laws with the elements listed in your Franchise Agreement, addressing any conflicts with the franchisor in advance of subscription. The franchise buyer must ensure the Franchise Agreement allows for full legal compliance with the intended locality or run the risk of being unable to set up shop!
3. Compare the legal elements of Franchise Agreements with those listed in the Franchise Disclosure Documents and Uniform Franchise Offering Circular for discrepancies and obvious omissions. Discuss any confusing, unclear or contrasting elements with the franchisor and have them corrected immediately.
4. Protect yourself legally by maintaining records of all negotiation correspondence. Getting everything in writing is smart business practice, ensuring enforceability in most courts of law.
5. Make careful note of any kill clauses concerning compliance, output and sales figures. Many franchisors reserve the right to terminate the Franchise Agreements or certain elements therein should the franchisee fail to meet certain minimum profit, quality and trademark requirements.
6. Pay close attention to termination policies, dispute resolution and renewal rights included in most Franchise Agreements, which tend to be heavily weighted in favor of the franchisor rather than the prospective buyer. Give yourself a written legal out in the event that you wish to sever the arrangement without losing more than your investment.

Tips & Warnings

• Seek the help of a franchise attorney or other experienced professional if you have any questions or concerns about the language and postulates of Franchise Agreements you are considering.
• Several high-quality online venues (see Resources below) afford interested parties a wealth of comprehensive information vital to understanding the elements of a Franchise Agreement before buying in.
• Federal law requires prospective buyers be furnished all documentation at least five days before signing a Franchise Agreement.
• Evaluate your needs and requirements carefully in advance of signing Franchise Agreements, as negotiating contentious elements cemented by contractual obligation is legally impossible without extenuating factors affecting its validity.