If you have ever purchased a franchise business or been interested in doing so, then you know that franchise companies must disclose certain things to potential buyers before a sale ever takes place and a new franchisee comes on board. Being able to consult a franchise lawyer is extremely important in being certain that your rights as a franchisee are protected.
The process starts with an interested party or buyer being supplied with a franchise disclosure document, or an FDD. This document contains all the pertinent details about the business so that the buyer can be fully informed about the benefits and risks of investing in the franchise company. The purpose of an FDD is to provide information only. It is not legally binding in and of itself and does not create a legal business relationship. Most of these disclosures have been prepared by franchise attorneys because they can be hundreds of pages in length and must include 23 items that are specified and required by the FTC (Federal Trade Commission). The FDD should provide a clear picture of the company and what being a franchisee will look like.
The FDD is not the same as a franchise agreement. While the FDD does not result in a binding business relationship, the franchise agreement does. It is the legally binding agreement to buy into the franchise. Franchise legal services can be especially helpful in identifying each type of document and preventing you from signing a franchise agreement prematurely.
These are some of the reasons why you want to consult a franchise attorney throughout the process of reviewing the FDD.
- A franchise lawyer brings relevant experience – A franchise attorney has reviewed many of these documents and may even have written some himself or herself. He or she can see red flags, irregularities, and expose information that was not disclosed while offering insight and advice.
- A franchise lawyer can understand the documents more easily – A franchise lawyer should review all FDDs for complete disclosure of information and identification of the franchisee’s duties and responsibilities. Franchise attorneys are also familiar with legal terminology, which allows them to comprehend more of the FDD compared to franchisees.
- A franchise lawyer can help you identify risks – All business ventures carry risk. You need someone on your side who will understand and explain the risk factors to help you make a better decision.
- The lawyer can negotiate the franchise agreement moving forward – If you do decide to buy into the business, you will need a lawyer to represent you in the negotiation of the franchise agreement.
A franchise lawyer can help you fully understand the contents of the FDD. Although a franchise attorney won’t tell you whether or not to invest in a business, he or she can help you identify red flags and risk factors.