Legalities in a franchise operation

Franchising is a fantastic way of expanding one’s business if it is planned and executed properly. All the terms and conditions agreed upon by the franchisor and the franchisees need to be clearly outlined in a legal document that will serve as the basis of the relationship. The franchising contract should contain complete information on the earnings of the existing company, its history, litigation, experiences and top level contact information.

There are various elements of a franchise agreement that need to be carefully reviewed by both parties before finalization of the same:

1.    Reviewing and evaluating the potential business opportunity 2.    Negotiating and agreeing upon on the points of the final contract. 3.    Limiting personal liability and establishing correct business structure. 4.    Dealing with patented and proprietary issues. 5.    Establishing a unique trade name 6.    Dealing with legislation

These conditions are highly important for a franchise relationship and it is important for a franchisee to seek legal advice when examining the above. While amendments and negotiations are feasible before the actual agreement is signed, it must be noted that transferring ownership of a franchise is not as easy. There may be clauses in the franchise agreement that may restrict ownership transfer or even prohibit it.

While transfer of ownership is difficult, cancellations or terminations of franchise agreements before the completion of the contract can have serious financial consequences for franchisees. To be successful in franchising and to comply with the laws governing the same, therefore, it is essential to understand the business and legal ramifications of the franchisor – franchisee relationship. A franchisee should, at the outset, focus on marketing and promoting the brand successfully in order to capture market share.