You can get excited about starting a franchise business. However, you should know that the process can be complex. The challenges range from handling day-to-day operations to devising business strategies to ensure franchise success.
You also need to address different legal considerations. These formalities are important for building a successful franchise.
You should know that there is a legal framework to consider before becoming a franchisee. Legal considerations may include registration, intellectual property protection, supply chain integrity, and franchisee relationships. This is imperative for the continued growth of the business. Speaking to Jason Power of Franchise.Law at this time can be beneficial.
This article provides legal insights for business owners looking to franchise. You will learn the legal factors to consider and how to manage legal complexities.
Legal Essentials Every Franchise Owner Must Know
Business owners must consider different legal aspects when becoming a franchise. They must also recognize that there are business considerations to address. These considerations include how scalable the business is, the margins, established processes, and the ability to motivate, teach, and enforce.
You also need to define your business's pillars. Without this, success can be difficult. You also need to define the terms of the relationship, the conditions for renewal, and the cost.
Additionally, you need to consider the parties' obligations and protect your intellectual property. Another aspect to consider is highlighting the conditions for transfer, dispute resolution, and post-term provisions.
Franchise Registration: State vs. Federal Laws Explained
To become a franchisee, you must complete a franchise registration and abide by disclosure laws. Certain regulations govern how a business can become a franchise at the state and federal levels.
Franchisors may face some issues when becoming franchisees because federal and state laws may not coincide. For example, federal law requires disclosure, while Minnesota requires registration and disclosure. Thus, to be a franchise in the state, you must register with the state before you can sell franchises to residents in the state.
Ensuring Supply Chain Integrity While Meeting Legal Standards
It is paramount to do your due diligence on all your suppliers. If you have not done thorough due diligence on a supplier, you should not allow them into your system. You must also ensure that you review all the products you will deal with.
Ensure that the franchisor approves all products. As a franchisor, you should also check regularly. You have to ensure product or facility quality. You may also make regular checks at irregular intervals.
Safeguarding Your Franchise: Trademark & IP Protection
You must ensure intellectual property rights at the beginning of your franchising journey. Securing federal trademark protection is generally considered the beginning of franchising.
If you have not yet obtained intellectual property or trademark protection, you must apply before starting your franchising journey. This is critical if you hope to expand globally.
Franchise Agreements: Key Terms You Must Understand
The first thing you should do as a franchisor is conduct due diligence on the buyer. This will help ensure that the buyer is an ideal match for the franchise system and qualified enough to operate that franchise.
You may also mandate the buyer to undertake some training. Other requirements include paying the transfer fee, upgrading the location to meet the current standard, and signing the franchise agreement.
Common Challenges Franchisors Face & How to Overcome Them
The following are common issues established franchisors face:
- Franchise relationship tensions
- The franchisor is not providing the value for the royalty paid
- Disagreement on location upgrade for consumer satisfaction
To mitigate this problem, you need to look to the future. Your franchise agreement should contain the pre-dispute and dispute resolution process and explain how the franchisor can require an update to location, equipment, and royalty payments during the term of the deal.
Key Elements Every Franchise Agreement Must Include
Paying attention to drafting a franchise agreement can help ensure its adaptability to changes. This is why it is vital for the agreement to provide both parties' obligations throughout its duration.
You need to ensure that the agreement truly reflects the relationship. It also must provide for dispute resolution processes, which are imperative because they help resolve disputes.
Enforceability is another area to consider. You need to ensure mutual obligation in this area. The agreement must also reflect both parties' obligations when it ends.
Some of the key things to address in an agreement include confidentiality, non-competition, and de-identification.
Protecting Yourself from Value Chain Disruptions
It is imperative to include redundancy in your value chain. It will keep your business flowing. This means that even when one of your suppliers is unavailable, you can easily get another supplier to fill in.
Another very effective strategy you can employ is working hand-in-hand with your franchisees to find local suppliers. Local suppliers are less vulnerable to disruption.
Also, including supply chain stability in the franchise agreement would be a mistake. Instead, you should include exculpatory language about supply sources.
Legal Readiness: Your Path to a Thriving Franchise
Scaling up your business and going global is pleasing to the ears. However, you must do your due diligence to ensure you do not run out of ideas.
You also need to ensure that you address different legal considerations before franchising. It will be odd to run into crises after investing your resources and time into the franchise process.If you follow regulations and play your cards right, you can scale up businesses and build a global franchise. Make a local franchise law attorney your ally before commencing the process. They will guide you to prevent legal hiccups.
