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If you have been researching different franchise opportunities online, you may have come across references to the term, “business format” franchise. You might even be – in fact, you probably are – considering a business format franchise opportunity. So, what exactly does this mean? Business Format Franchising 101 Most franchise opportunities today are what are known as, “business format” franchises. When you put all of the pieces together, this is ultimately a lot like it sounds. With a standard business format franchise, franchisees receive: A License to Use the Franchisor’s Principal Trademark – A license to use the franchisor’s principal trademark is a key component of the business format franchise. As a business format franchisee, you operate under the franchisor’s principal trademark—which is typically the name, or “brand,” you use to identify your business. Subway, Motel 6, RE/MAX, UPS Store – these are all examples of business format franchises. Access to the Franchisor’s System and Standards – As a business format franchisee, you also receive the right (and obligation) to use the franchisor’s system and standards to operate your business. This typically includes initial training, standard buildout plans, access to an “operations manual,” some level of ongoing support, and instructions for use of point-of-sale (POS) systems and key functionalities. The Right (and Obligation) to Sell the Franchisor’s Products or Services – The third major aspect of a business format franchise is the right to sell the franchisor’s products or services. This may include branded items, food recipes, suites of services, […]

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We are pleased to announce that the Goldstein Law Firm was recently named North America’s “Franchise Law Firm of the Year” in the 2016 edition of the Finance Monthly Global Awards. We are extremely proud of this recognition, and we are excited to share this news with our colleagues, clients and friends. About Finance Monthly Finance Monthly is a respected global publication that delivers “news, comment and analysis to those at the centre of the corporate sector.” Through multiple platforms, Finance Monthly reaches nearly 200,000 readers on a monthly basis. Finance Monthly’s headquarters are located in Lichfield, England, approximately midway between Manchester and London. About Finance Monthly’s 2016 Global Awards Winners of Finance Monthly’s 2016 Global Awards were selected through a nomination process which included client and peer research focused on “identifying the most successful organisations and advisors from around the globe.” In announcing the 2016 award winners, Finance Monthly released a statement saying: “[W]e are excited to present you a publication which contains some of the most successful and trusted firms operating in the dynamic financial sector, which will undoubtedly continue to experience growth through their commitment to excellence in 2016 and beyond.” Goldstein Law Firm’s Recognition in the 2016 Global Awards The Goldstein Law Firm was the only franchise law firm to be recognized among the approximately 130 winners worldwide. As published in the 2016 Global Awards: “Although Jeff Goldstein and the Goldstein Law Group are known as exceptional negotiators, they are also recognized as commanding litigators in […]

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Whether you are seeking to sell your franchised outlet or buy an existing franchise as opposed to an independent business, it is important to understand that franchisors often exercise strict control over the transfer process. To a certain extent, this is understandable: Franchisors have a legitimate interest in controlling who operates under their brand and system, and as a result evaluating a transferee should involve much the same process as evaluating a completely new franchise prospect. However, for any of a variety of reasons, some franchisors take their control over franchise transfers too far. As a result, if you are considering buying or selling an existing franchised outlet, here are some key transfer provisions to keep in mind: Common Transfer Restrictions in Franchise Agreements 1. Franchisor Consent to Transfer First, you can be almost certain that the current franchise agreement contains a provision that requires the franchisor’s consent in order to transfer the business. If the current franchisee hired an attorney before purchasing the franchise, he or she may have negotiated a “reasonableness” limitation (i.e. “The franchisor’s consent to transfer cannot be unreasonably withheld”) into the agreement. In addition, state law may require the franchisor to exercise its contractual rights in good faith. However, these are both subjective standards, and obtaining franchisor consent can often be a significant hurdle in the franchise transfer process. 2. Transferee Approval Along the lines of a consent requirement, many franchise agreements also state that the transferee is subject to franchisor approval. Ideally, this approval […]

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Whether you are considering buying a franchise or you are facing a legal dispute with your franchisor, it is important to make an informed choice about your legal representation. While you certainly want an attorney who devotes his or her practice to franchise law and franchise-related issues, this shouldn’t be your only consideration. For a variety of reasons, it is also important that you hire an attorney who exclusively represents franchisees. Three Reasons to Hire a Lawyer Who Exclusively Represents Franchisees Here are three reasons why current and prospective franchisees should strongly consider choosing a lawyer whose practice does not include representing franchisors: 1. Focused on the Issues from the Franchisee’s Perspective. First, when an attorney splits his or her time between representing two different client bases, he or she is necessarily going to split time between protecting those client bases’ respective interests. This issue is magnified when each client base’s interests are diametrically opposed to the other’s. For example, let’s take the increasingly-complex issue of franchise renewal. If your lawyer only represents franchisees, he or she will consistently be approaching franchise agreement negotiations and renewal scenarios from the perspective of, “How can I make sure my client has the greatest amount of flexibility when it comes to choosing whether or not to renew?” On the other hand, an attorney who also represents franchisors will have to spend time focusing on ways to make their franchisor clients’ agreements more restrictive while maximizing franchisor control. 2. No Conflicts of Interest. Beyond […]

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As a franchisee, you no doubt appreciate the value that a strong brand can bring to the table. In fact, brand recognition is one of the top reasons why many people choose to buy a franchise instead of starting an independent business. With approximately 27.5 million viewers having tuned in daily to watch the 2016 Rio Olympics on U.S. broadcast television and online streaming, you may be thinking about cashing in on the Olympics’ brand value in 2020. But, the question is, can you? The Olympic Trademarks Like other famous brands – including NFL, Super Bowl, NCAA, Final Four – “Olympic” is a registered trademark. The United States Olympic Committee (USOC) owns the registration with the United States Patent and Trademark Office (USPTO), and this means that using “Olympic” (or any confusingly-similar trademark) for commercial purposes requires a license from the USOC. Like other major sports organizations and other famous brand owners, the USOC makes money (lots of money) from licensing its trademark, and as a result it has been known to vigorously pursue businesses that attempt to benefit from associating themselves with the Olympics without acquiring a license. What about the Olympic rings? As you might have guessed, those are protected, too. A trademark can be a word or symbol (or a combination of both), and using the Olympic rings in your business without authorization could also very well lead to the USOC sending a cease-and-desist letter. In fact, not only are the Olympic trademarks protected by federal registrations, […]

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When comparing different franchise opportunities, there are several factors that come into play. Brand recognition, royalty rates, training, the initial investment – these are all issues that, for most prospective franchisees, are top of mind. But, there is another issue that can be just as important as these (if not more), and that also serves to differentiate certain franchisors from others. This is the issue of mandatory arbitration. While you may not be concerned about getting into a dispute with your franchisor right now, what your franchise agreement says about arbitration can be critical to understanding – and protecting – your rights should a dispute arise down the line. What is Mandatory Arbitration? Arbitration is a voluntary form of alternative dispute resolution (ADR) that is intended to provide consenting parties with an efficient and cost-effective way to avoid the burdens of full-blown litigation. In many commercial situations, it will be in both parties’ best interests to acknowledge their differences and work toward a resolution without spending unnecessary time (and money) going to court. But, if arbitration is “voluntary” and designed to save money, why are we talking about “mandatory” arbitration; and, why have we said that arbitration is not necessarily fair for franchisees? If your franchise agreement has an arbitration clause, then you are subject to mandatory arbitration. Essentially, when you signed the agreement, you “voluntarily” agreed to submit all relevant disputes to arbitration regardless of whether it is in your best interests to do so when the time actually […]

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This is Part 3 of our three-part series, Understanding Your Franchisor’s FDD. Here, we cover some of the highlights of Items 15 through 23. For our discussion of Items 1 through 14, you can read: Understanding Your Franchisor’s FDD – Part 1 (Items 1 through 7) Understanding Your Franchisor’s FDD – Part 2 (Items 8 through 14) Item 15: Obligation to Participate in the Actual Operation of the Franchise Business What You’ll Find Any restrictions the franchisor imposes regarding who can take responsibility for the day-to-day operation of the franchised business. Why You Care While some franchisors do not require their franchisees to have direct involvement in their outlets’ day-to-day operations, others do. If your franchisor requires direct, “on-premises” supervision, this is certainly something you will want to know (especially if you are looking for a multi-unit opportunity). Item 16: Restrictions on What the Franchisee May Sell What You’ll Find Any requirements to sell only approved goods or services, as well as any requirements to sell all goods or services authorized for sale at franchised outlets. Why You Care If your franchisor limits your inventory or service offerings, this is something that you will need to take into consideration when evaluating the financial potential of your franchise. Likewise, if your franchisor requires you to carry all approved products, is this going to leave you paying for inventory that just ends up going to waste? Item 17: Renewal, Termination, Transfer, and Dispute Resolution What You’ll Find A table that identifies where […]

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This is Part 2 of our three-part series, Understanding Your Franchisor’s FDD. In Part 1, we covered Items 1 through 7. Here in Part 2, we cover Items 8 through 14: Item 8: Restrictions on Sources of Products and Services What You’ll Find In Item 8, franchisors are required to disclose any obligations for franchisees to purchase or lease necessary products or services either (i) from the franchisor, (ii) from a designated or approved supplier, or (iii) according to mandatory specifications. This includes: Supplies, fixtures and equipment Inventory Computer hardware or software (including POS systems) Real estate Any “comparable items related to establishing or operating the franchised business” Why You Care Purchasing controls can often mean higher purchasing prices for franchisees. When a franchisor negotiates a volume rebate with a supplier, this does not necessarily mean that savings get passed on to the franchisees. In fact, instead it can simply mean that franchisees lose the ability to shop for competitive pricing. Item 9: Franchisee’s Obligations What You’ll Find Item 9 is comprised of a cross-reference table that identifies where you can find various pieces of information (like site selection and pre-opening requirements) in the Franchise Disclosure Document (FDD) and the franchisor’s standard franchise agreement. Why You Care If you are not familiar with reviewing FDDs and franchise agreements (and most prospective franchisees aren’t), you can use the Item 9 table to get an overview of the key legal and business terms that will apply if you decide to move forward […]

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Pursuant to federal regulations and franchise laws in various states around the country, before selling a franchise, the franchisor must provide the potential buyer with a Franchise Disclosure Document (or “FDD”). Each franchisor’s FDD must closely follow a format that includes: A Cover Page A table of contents Specific information broken out into 23 “Items” Exhibits (including a copy of the franchisor’s standard franchise agreement) While understanding your franchise agreement needs to be a top priority, it is also important to critically assess the information contained in Items 1 through 23. In a series of three articles, we will summarize what you can (or should) expect to see when you open up your franchisor’s FDD. Item 1: The Franchisor and Any Parents, Predecessors and Affiliates What You’ll Find Along with general business information (like the franchisor’s name and address), Item 1 must contain: a description of the franchise business, the general market for the franchise system’s products or services, disclosures regarding the franchisor’s franchising history and whether it operates any company-owned outlets, and information about competition and industry-specific laws. Why You Care While Item 1 disclosures tend to be pretty general, prospective franchisees can uncover some key information in Item 1. For example, if the franchisor has a prior history in franchising (especially an unsuccessful one) or if the industry has unique legal requirements, this is certainly something you will want to know going into your franchise opportunity. Item 2: Business Experience What You’ll Find A five-year employment and business […]

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The franchise industry is booming. According to the International Franchise Association’s Franchise Business Economic Outlook for 2016, the number of franchised outlets, number of franchise employees, and gross domestic product (GDP) from franchised businesses all increased more than expected during 2015. Last year’s growth figures exceeded those from 2014, and the International Franchise Association expects to see similar growth in 2016. For franchisees, the franchise model has its benefits. However, these benefits come with strict limitations as well. So, if you want to own your own business, is a franchise worth it? Benefits of Buying a Franchise Talk to any franchise consultant, and you will hear pretty much the same story about why franchising is a smart alternative to building an independent business from the ground up. Generally speaking, the hallmark benefits of buying a franchise include: Brand Recognition – Customers who want to know what to expect rely heavily on brand recognition (consciously or not) in deciding where to spend their money. Unlike starting a business from scratch, with a franchise you have instant credibility. Proven System – Franchisors offer proven systems, covering everything from site selection and trade dress to point-of-sale technology and back-end financial management. When you buy a franchise, you are buying the right to benefit from the franchisor’s background and expertise. Franchisor Support – Franchisors have an interest in making sure their franchisees are successful. Successful outlets mean more royalties and better selling points for new prospective franchisees. Of course, some franchise systems offer more […]

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