
Joel N. Kreizman
Partner
732-568-8363 jkreizman@sh-law.comFirm Insights
Author: Joel N. Kreizman
Date: June 6, 2013
Partner
732-568-8363 jkreizman@sh-law.comWith the economy rebounding, many budding entrepreneurs are starting to explore new business opportunities again. For those who are not quite ready to jump back in feet first, a franchise may be the way to go.
A franchise is a legal relationship between the owner of brand (a trademark, service mark, trade name, etc.) and another entity seeking the right to use that brand in the sale of goods and services. The franchisee may also enter a broader relationship in which the franchisor provides products, training, and marketing assistance. Common franchise examples include car dealerships, restaurants, fitness clubs and personal services like tax preparation.
Because you are buying into a proven business idea, a franchise carries fewer risks that starting a new business from scratch. In fact, the success rate of franchise-owned businesses is considerably higher than traditional small businesses.
Of course, there are still a number of risks. As with every business opportunity, you must conduct due diligence. Issues to consider include:
While you should conduct your own independent research, the Federal Trade Commission also requires franchisors to provide each prospective franchisee with a disclosure document. The document must be provided at least 10 business days before any purchase may occur. Required information includes a fully audited financial statement; contact information for other franchises; cost required to start and maintain the business; and litigation involving the company or its officers.
Franchise agreements almost always, if not always, have a clause saying that the agreement supersedes any promises or representations that are not included in it. All too often franchise salespersons make promises and representations to prospective franchisees that are not fulfilled nor are they enforceable.
A franchise can be a wonderful business opportunity, but it is also full of traps for the unwary. The best way to protect yourself is to consult with an experienced business attorney.
If you have any questions about opening a franchise or would like to discuss the legal issues involved, please contact me, Joel Kreizman, or the Scarinci Hollenbeck attorney with whom you work.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
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