Buying a Franchise in the U.S. With an E-2 Visa: An Overview

Feb 26, 2021 - Blog by |

For individuals who live in a treaty country and are thinking about starting or acquiring an existing franchise in the United States, one of the first steps is often to apply for an E-2 visa. The E-2 visa is available to foreign nationals who are prepared to invest “a substantial amount of capital” in a U.S.-based business. Due to the benefits that a franchise can offer, many foreign investors choose to pursue a franchise as a means for obtaining an E-2 visa. Here, franchise lawyer Jeffrey M. Goldstein provides an overview of the E-2 visa requirements as well as some other important considerations for buying a franchise in the United States. Who Qualifies for an E-2 Visa? The qualifications for obtaining an E-2 visa are available from U.S. Citizenship and Immigration Services (USCIS). E-2 visas are available to foreign citizens lawfully residing both within and outside of the United States, although those who are currently in the U.S. must file a different form (Form I-129) to request a change of status. The basic qualifications for obtaining an E-2 visa to buy a franchise in the U.S. are as follows: Being a national of a treaty country; Investing “a substantial amount of capital in a bona fide enterprise in the United States;” and, Owning at least 50 percent of the franchise and/or having operational control. What are the Investment Requirements for an E-2 Visa? U.S. immigration laws do not specify a dollar amount for determining what qualifies a “substantial” investment in […]

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IFA Releases Annual Economic Outlook Report for 2021

Feb 24, 2021 - Blog by |

The International Franchise Association (IFA) recently released its Annual Economic Outlook Report for 2021. As summarized on the IFA’s website, “The report offers an in-depth look into franchising’s growth trend following the economic fallout due to the COVID-19 pandemic . . . . [T]he report forecasts positive growth expected for franchise businesses in 2021, provided continued federal support, and suggests the potential to reach pre-pandemic levels of economic output by the end of the year.” Here, franchisee attorney Jeffrey M. Goldstein takes a look at some of the key data from the report. 1. FRANdata Anticipates Strong Resurgence in Franchise Openings Much of the information contained in the IFA’s report was provided by FRANdata. According to FRANdata, while the number of franchised establishments dropped by approximately 20,000 in 2020, nearly 30,000 are expected to open in 2021. This would represent a 3.5 percent growth and would put the total number of franchised outlets at around 780,000—above the total of 773,603 at the end of 2019. 2. FRANdata Expects Franchise Output to Increase Significantly As Well While franchise output grew just 5.5 percent in 2018 and just 3.6 percent in 2019, FRANdata is anticipating a substantial 16.4 percent increase in 2021. This largely represents a bounce back from the 14.9 percent lost due to the COVID-19 pandemic in 2020 and would put total output for 2021 close to the 2019 total ($780 billion versus $787.5 billion). 3. The Franchise Industry’s Success in 2021 is Hugely Dependent on Our Ability to Control […]

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Startup Burger Franchise Ordered to Offer Rescission and Full Restitution to Its Franchisees

Feb 19, 2021 - Blog by |

On February 16, 2021, the California Department of Financial Protection and Innovation (DFPI) issued an order requiring Burgerim, a startup burger franchise, to offer rescission and full restitution to its franchisees. As reported by the Franchise Times, Burgerim sold 1,550 franchises over approximately five years, but only about 130 of its franchisees were ultimately able to open for business. As franchise lawyer Jeffrey M. Goldstein explains, Burgerim committed various disclosure violations and engaged in various other forms of improper conduct as well. Burgerim Ordered to Make Its Franchisees Whole In its order, the California DFPI said that Burgerim must offer rescission to all 1,550 of its franchisees and to, “financially place the franchisees in the position they were in before they entered into the franchise agreement.” Beyond refunding franchisees’ initial franchise fees, this is intended to include refunding any royalty payments and advertising contributions, as well as any and all costs franchisees incurred in building out their burger franchises. The California DFPI also ordered Burgerim to pay nearly $4 million in administrative penalties–$2,500 apiece for the company’s 1,583 separate violations of California’s Franchise Investment Law. Some examples of the violations cited in the California DFPI’s order include: Selling franchises without providing prospective franchisees with a copy of the Franchise Disclosure Document (FDD) at least 14 days prior to signing; Willfully making “untrue statements of material fact” in its franchise registration applications; Misrepresenting that franchisees were being required to pay a 5-percent royalty when in fact the franchisor was not collecting […]

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Should You Buy a Franchise With an “On-Trend Brand”?

Feb 17, 2021 - Blog by |

A recent article in the Franchise Times discusses the success of an emerging franchise system. In part, the article attributes the system’s success to having an “on-trend brand.” But, making a long-term investment in a franchise based on a trend isn’t necessarily the best decision—as trends can fade long before franchise agreements expire. With that said, if a trend is here to stay, then buying in could prove to be a smart investment. So, how do you decide? Here are some insights from franchisee lawyer Jeffrey M. Goldstein: Is the Trend Local? One important consideration is whether the trend is relevant to the geographic area in which you are planning to open a franchise. For example, the Franchise Times article focuses on the relevance of BurgerFi’s “on-trend brand” in Saudi Arabia. Specifically, the article notes the system’s use of “beef that is free of hormones, steroids, antibiotics or other additives,” and emphasizes that, “[t]he quality of its products will resonate with Saudi consumers.” While these are all characteristics that might make for a successful burger franchise in various regions of the U.S., different markets require different analyses. Just because a brand is “on-trend” in one area doesn’t necessarily mean that it will be “on-trend” in another. Does the Trend Have Staying Power? Buying a franchise is a long-term investment, but trends come and go. Even if a franchise finds success in its early years due to piggybacking off of a trend, this does not necessarily mean that the franchise will […]

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It’s Time for Another “Franchise Top 10”: What Prospective Franchisees Need to Know About Franchise Reviews

Feb 12, 2021 - Blog by |

It’s the time of year when many online publications release their annual lists of the “top” franchises. The Franchise Times is the latest to join the list, with its “10 Top Franchises to Buy” released on February 24. While franchise reviews like these can be informative in some respects, prospective franchisees need to take them with a grain of salt, and they need to make their own informed buying decisions based on thorough due diligence. The Franchise Times ‘Zor Awards for 2021 The Franchise Times’ “10 Top Franchises to Buy” list (which it also refers to as its ‘Zor Awards) are unique from other franchise reviews in that the publication chooses a “top” franchise in 10 different industry categories. These categories, and the ‘Zor Awards winners, are: Indulge Me (sweet snacks and deserts) – Duck Donuts beat out Bruster’s Real Ice Cream, Handel’s Ice Cream, and Cinnaholic Puppy Love (pet supplies and services) – Pet Supplies Plus beat out Camp Bow Wow, Hounds Town USA, and Wag N’ Wash Guilt-Free Eats (healthy food options) – Tropical Smoothie Café beat out CoreLife Eatery, Clean Juice, and Chop Stop Clean Sweep (cleaning services) – MaidPro beat out The Cleaning Authority, The Maids, and You’ve Got Maids Cluck, Cluck (chicken restaurants) – Slim Chickens beat out Wings Over, Wingstop, and Bojangles Famous Chicken ‘n Biscuits Outside Pride (outdoor activities and services) – America’s Swimming Pool Co. beat out Grounds Guys, Lawn Doctor, and U.S. Lawns Spice is Nice (Mexican restaurants) – Pancheros Mexican […]

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Franchisors May Choose Not to Make Item 19 Financial Disclosures Due to Economic Impacts of COVID-19

Feb 10, 2021 - Blog by |

According to a recent article from Franchise Times, some franchisors may choose not to make Item 19 financial disclosures as a result of the COVID-19 pandemic. While franchisors have the option to either provide a financial performance representation (FPR) or make a “negative disclosure” in Item 19, FPRs provide important insights for prospective franchisees who need to gather as much information about franchise opportunities as possible. Here, franchise attorney Jeffrey M. Goldstein provides an overview of why some franchisors will likely forego making FPRs in 2021 and what this means for franchise buyers. Why Are Some Franchisors Unlikely to Make FPRs Based on 2020 and 2021 Financial Data? The Franchise Times article quotes several franchisor attorneys who share their thoughts on why making FPRs based on data from the COVID-19 era may be risky for franchisors. The general sentiment is that since the COVID-19 pandemic has had a drastic financial impact on many franchise systems, financial performance data from 2020 and 2021 might not necessarily be representative of what franchisees can expect to earn in the future. While this may or may not be true – at this point, it is still unclear how long the economic impacts of the COVID-19 pandemic will last – prospective franchisees could still benefit greatly from reviewing updated FPRs. The article also expresses concern that the data from 2020 and 2021 might not be “replicable,” and that this could lead to trouble for franchisors (especially for those that experienced what Franchise Times terms the […]

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5 Important Facts About Franchise Rankings and Franchise Reviews

Jan 29, 2021 - Blog by |

When you are looking for information about franchise opportunities online, you will find lots of sites that promote their own franchise rankings and offer franchise reviews.  While some of these rankings and reviews provide useful insights, it is important to understand their limitations as well. If a franchise is ranked first in a particular category, what does this mean, exactly? How do different sites come up with their rating systems, and how do they choose which franchises to review? These are crucial questions; and, when analyzing rankings and reviews, it is necessary to go beyond the ranking or review itself and consider the factors upon which each ranking and review is based. Fact #1: Many Rankings and Reviews are “Pay for Play” Many websites require franchisors to pay in order to receive consideration for their rankings, and many franchise reviews are provided on a paid basis. However, this fact is often obscured in the published ranking or review. Obviously, paid reviews should be taken with a grain of salt, and it will be important to gather information about the franchise from several unbiased sources as well. Fact #2: All Franchise Rankings are Based On Selected Data All franchise rankings are based on selected data, and many rankings weight certain factors more heavily than others. As a result, when reviewing rankings, it is important to examine the ranking criteria in order to discern exactly what it means for one franchise system to be ranked above or below another. Fact #3: Franchise […]

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A Look at the State of the Food Franchise Industry Heading Into 2021

Jan 27, 2021 - Blog by |

Food franchises account for nearly a third of all franchised outlets in the United States. As a result, the health of the food franchise industry is crucial to the health of the franchise industry as a whole, and trends in food franchising often make their way into other sectors. 5 Key Insights About the Food Franchise Industry So, as we move forward in 2021, how is the food franchise industry doing? FranchiseDirect.com recently provided an overview. Here, franchisee attorney Jeffrey M. Goldstein covers some of the highlights. 1. The Food Franchise Industry has Been Hit Hard By the Pandemic, But is Still Poised for Long-Term Growth Many food franchises have been hit hard by the pandemic. Mandatory closures, capacity restrictions and other economic impacts of the pandemic have been felt across virtually all segments of the food industry. However, many of the leading food franchise systems have shown both adaptability and resilience, and those with the capital to weather the storm remain poised for long-term growth. 2. Some Recent Trends are Starting to Take Hold Some recent trends that seemed like they might fade are starting to take hold. Many of these trends are health and fitness-related. For example, juice franchises are still growing in popularity, and new vegan and vegetarian franchise concepts are emerging while many of the mainstay franchise concepts are adding vegan and vegetarian options to their permanent menus. 3. Established Models and Franchise Systems are Holding Strong While new trends are emerging, established models and franchise […]

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Is Now the Time to Invest in an Education Franchise?

Jan 22, 2021 - Blog by |

The COVID-19 pandemic has had an unprecedented impact on our education system. With many students missing months of school in 2020, and with students across the country attending class remotely and relying on working parents for daily guidance in 2021, experts are forecasting long-term impacts for students of all ages. As reported by the Organization for Economic Co-operation and Development (OECD): “This crisis has exposed the many inadequacies and inequities in our education systems – from access to the broadband and computers needed for online education . . . up to the misalignment between resources and needs. The lockdowns in response to COVID-19 have interrupted conventional schooling with nationwide school closures . . . [and w]hile the educational community have made concerted efforts to maintain learning continuity during this period, children and students have had to rely more on their own resources to continue learning remotely . . . .” Given these impacts, parents across the country are looking to non-traditional venues to ensure that their children are able to receive the education they need. This includes relying on education franchises. Should You Invest in an Education Franchise During the COVID-19 Pandemic? If you are thinking about investing in an education franchise during the COVID-19 pandemic, there are several important factors you will need to consider. While the short-term demand may be enticing, this is just one of numerous considerations that should ultimately guide your buying decision. Here is an overview of some of the key issues involved in buying […]

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What Should You Do if COVID-19 Threatens Your Franchise in 2021?

Jan 20, 2021 - Blog by |

While the start of the New Year was a symbolic refresh for many people, as 2021 is now in full swing, it is clear that things are still far from normal. Spikes in COVID-19 cases are once again triggering new shutdowns and restrictions around the country, and many business owners – franchisees in particular – are struggling as a result. If your franchise is at risk in 2021 due to the effects of the pandemic, what do you need to know? Here are some important insights from franchise lawyer Jeffrey M. Goldstein: 1. Lots of Franchisees are Going to Struggle in 2021 First, if your franchise is struggling, you are not alone. The COVID-19 pandemic has hit the franchise industry particularly hard, as many franchises either: (i) operate out of retail locations that have faced restrictions, (ii) provide products and services that consumers and businesses have cut out of their budgets due to the economic effects of the pandemic, or (iii) are facing both of these challenges simultaneously. 2. Some Franchisors are Offering Grace to Struggling Franchisees During the pandemic, some franchisors have launched initiatives focused on helping struggling franchisees. These initiatives range from providing loans to deferring royalty fees and cutting other mandatory expenditures. If your franchisor is offering support to franchisees during the pandemic, this may be an option you will want (or need) to consider. However, it will be important for you to read the fine print as well. 3. Financial Relief Programs May Be an Option […]

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