Becoming a Franchisor
Should you franchise your business?
Franchising is a way to expand your business by licensing certain rights to a third party. Most often, the rights you will license are the rights to use: (i) your principal trademark; (ii) your “trade dress,” or the total image of your business; and (iii) your “know-how,” or your methods for operating a business. The third party will use those rights to open and operate his or her own business. In exchange, the third party will pay you various fees and will grant you the right to control certain aspects of the way he or she operates the business.
Franchising offers you more than significant financial rewards: it also allows you to grow much more rapidly, share risk with your franchisees, obtain greater economies of scale in purchasing, enjoy increased motivation at each location, and get better ideas from the field.
Franchising lets you bring talented, entrepreneurial team players into your system as franchisees. The relationship between you and your franchisees is one of mutual interest. Franchisees bring their individual talents, like expertise in e-commerce, customer relations, advertising, management, marketing, and supply chains into your system. They are motivated to share their talents with you, because it is in their interest to build your brand and help make the entire franchise system more profitable.
How a franchise law specialist can help
To bring your system to the franchise marketplace, you will, among other things:
- Structure and form the company that will be the franchisor
- Structure and form related companies, such as a company to hold your trademarks, to distribute branded products, and to operate company-owned outlets
- Register one or more trademarks
- Develop marketing materials and a website
- Have a certified public accountant audit your financial records
- Have franchise counsel draft your franchise agreement and Franchise Disclosure Document (the “FDD”), and related agreements like guaranties, confidentiality agreements, covenants not to compete, and development agreements
- Have franchise counsel register your franchise offering or obtain an exemption from registration, if you intend to offer franchises in a state that requires registration or exemption
A skilled and experienced franchise law specialist can help you coordinate all of these activities, can help minimize your costs, and can help bring your franchise to the marketplace quickly and efficiently.
The franchise law specialist can also draft franchise documents that are integral to your success. Your documents should protect you and your system. They should be clear, precise, and accurate. They should anticipate problems before the problems arise. They should comply fully with the Franchise Rule promulgated by the U.S. Federal Trade Commission (the “FTC”), and with the laws of all applicable jurisdictions where you offer franchises.
These franchise documents include:
- Your franchise agreement
- Your FDD, which is required by the U.S. Federal Trade Commission
- Agreements to help ensure that franchisees comply with their obligations, like guaranties of payment and performance
- Agreements to protect the confidentiality of your confidential information and the secrecy of your trade secrets, such as confidentiality agreements.
- Agreements to protect your investment and the investment of your franchisees, such as covenants not to compete
- Agreements to help you build your franchise system in a quick and orderly fashion, like development agreements
- Agreements to help protect you from liability, like releases, estoppels, and covenants not to sue
Contact a skilled and experienced franchise law specialist
At The Johnson Franchise Law Firm, our concentration is on franchise law and the business of franchising. With over 30 years of experience in law and 10 years’ experience in business, franchise lawyer Rick Johnson understands franchise law and business. He applies this experience to guide your company through the franchise development process. To take your business to the next level through domestic or international franchise development, please contact The Johnson Franchise Law Firm today.
