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Why Franchising?
Franchising offers many benefits to both franchisor and franchisee. For the franchisor, franchising provides a means to grow a business in part using the capital and efforts of others, while at the same time, establishing brand name recognition. Franchising gives a franchisor the flexibility to control all of the details of its franchisees’ operations to create a uniform system for the delivery of the franchisor’s products and services. Because franchisees tend to invest significant amounts of money in the franchise, they have a more vested interest in the success of the business than do managers of company-owned outlets. This vested interest translates into a greater degree of personal involvement and dedication to the business.
For the franchisee, franchising as a business model offers an opportunity to establish a new business and to be his or her own boss. More importantly, a franchisee investing in an established franchise system benefits from the brand name recognition and goodwill associated with the franchise system. Many franchise systems permit franchisees to benefit from the franchisor’s purchasing power through lower costs. Franchisees also benefit from the experience and guidance provided by the franchisor. As a result, franchisees can often avoid many of the pitfalls that plague and ultimately cause the demise of startup businesses. There are recent studies suggesting that approximately 90 percent of start-up businesses fail within their first five years of operation. In stark contrast, a study conducted by the U.S. Chamber of Commerce in 1999 revealed that 97 percent of franchises established within the five preceding years were still open for business!
Franchise Regulation
Although the franchise model offers many benefits from a business perspective, franchisors must be very cautious in maneuvering through the legal minefields created by federal and state franchise and business opportunity laws. These laws form a patchwork quilt of regulations that significantly impact franchise operations. To operate successfully and lawfully, franchisors need the assistance of experienced and capable franchise attorneys. That is where we can help.
Greenberg Traurig’s Franchise Team has helped establish franchise systems operating in all 50 states and internationally. Because franchising is regulated under both federal and state law, it is critical for companies entering into the franchise arena to be aware of all potentially applicable regulations. There are numerous states and U.S. territories that have adopted general franchise investment and or relationship statutes, as well as states that regulate franchising in special industries. Additionally, there are business opportunity laws in approximately 25 states. Franchisors must be aware of these laws because franchises commonly fall within the legal definition of a “business opportunity.”
Legal Services
In addition to the franchising services listed below, we have experienced attorneys who focus on numerous other practice areas that are relevant to franchising, such as antitrust and trade regulation, finance, government relations, litigation, corporate and securities, environmental, labor and employment, intellectual property, real estate and business reorganization and bankruptcy.
Greenberg Traurig is also a member of the IFA Council of Franchise Suppliers, a premier organization of franchisors, franchisees and suppliers, and we maintain a close working relationship with a network of franchise consultants. Additionally, each member of the franchise and distribution group is a member of the ABA Forum on Franchising.
Franchisor Representation
Our transactional franchise practice primarily involves the representation of franchisors. In this role we are involved in all aspects of the creation and ongoing operation of our clients’ franchise systems. One of the most important services we provide is structuring a new franchise system in a manner that will help our client achieve its short term and long term goals. Obviously, every franchise system is different, and one size does not fit all.
We provide the entire gamut of franchise formation and support services such as:
- Structuring franchise systems (e.g., single unit with or without area development rights or master franchise)
- Drafting franchise agreements and collateral documents
- Drafting operations manual
- Drafting and filing disclosure documents, state registration of franchise offers, and counseling on compliance with all elements of disclosure regulation
- Advising companies regarding compliance with Internet advertising restrictions directed at the offer of franchises and business opportunities
- Advising companies on all aspects of branding and franchise development
- Advising companies on trademark clearance and prosecution and intellectual property protection
- Advising companies on establishment of franchisee territories and exclusivity
- Counseling clients on franchise relationship issues including terminations, transfers, buy-backs, restructuring and conversions
- Advising companies on structuring initial franchise fees, royalties and advertising funds
- Preparing and filing state business opportunity registrations
In some instances our best advice to our clients is to not structure a business as a franchise. Franchising is not appropriate for all businesses. In those situations we work with the client to establish a business format that will allow the client to achieve its business goals.
Critical Documentation
After developing the franchise model, we begin drafting the necessary documentation, including the Uniform Franchise Offering Circular, franchise agreement, area development addendum, if appropriate, as well as other ancillary documents such as nondisclosure and non-competition agreements and personal guaranties. We strive to create agreements that not only provide franchisors with the flexibility, control and protection that they require, but that are also commercially reasonable and marketable. Working closely with the client, we also draft the franchise operations manual, which is required by federal law. These manuals contain all of the detailed information necessary to enable the franchisee to establish and operate the franchised business.
Franchise Sales Training
Once all of the documentation is prepared, we conduct a training seminar for the client’s franchise sales staff to familiarize the franchisor with the many intricacies and issues that arise in connection with the offer and sale of franchises. This seminar highlights the legal boundaries of permissible versus illegal franchise marketing activities. In addition, we provide practical advice regarding franchise sales methods and record keeping practices. At the conclusion of the training seminar, we provide our clients with a franchise sales training manual for future reference. Of course, we are always a phone call away and available for consultation as necessary.
Registration
Many states have franchise registration or business opportunity exemption requirements that a franchisor must meet before it may offer to sell a franchise in those states. We prepare and submit the necessary registration and exemption applications and work directly with state regulatory agencies to obtain an effective franchise registration or business opportunity exemption as quickly as possible. Over the years, we have worked with franchise regulators in every state that requires registration. Our attorneys have developed excellent working relationships with state regulators, which often helps to facilitate an expedient and seamless registration process. Prior to receipt of an effective registration or exemption, we work with our clients to ensure compliance with Internet advertising restrictions directed at the offer of franchises and business opportunities. In addition, we prepare annual registration renewals and post-effective amendments on an as needed basis.
Continuing Guidance and Support
Once the franchise system is operational, we provide continuing guidance and support pertaining to a variety of issues that invariably arise in the franchise context. We regularly advise our clients about the requirements and prohibitions of state relationship laws, which regulate the ongoing relationship between a franchisor and franchisee. Relationship laws typically govern issues such as terminations, renewals and transfers. We spend a great deal of time keeping ourselves apprised of the latest trends and developments in franchising. We are constantly following legal developments affecting the franchise industry and continuously updating our documents to make sure they are up to date. We maintain contact with our clients throughout the relationship to notify them of recent developments that may be of interest.
Franchisee Representation
On the franchisee side, our representation is generally limited to handling business transactions on behalf of area developers and master franchisees. Typically, our representation involves advising buyers of area development and master franchises or joint ventures and drafting or negotiating agreements related to these transactions. We believe our experience in representing both franchisors and franchisees in connection with significant franchising transactions allows us to bring a valuable perspective to the representation and provide more effective representation to our clients.
We also review franchise offering circulars and collateral documents and advise clients regarding their rights and obligations under these documents. We try to focus on what is most important to our clients and attempt to negotiate an agreement that is in the client’s best interest. Some key issues that we typically negotiate involve territorial rights, exclusivity, minimum sales quotas, development schedules, termination provisions, initial fees and royalties and renewal rights. We also regularly advise our clients regarding general corporate issues involved in the start up, acquisition and operation of a franchised business.
Representation of Noncompliant Franchisors
Sometimes our franchisor clients seek our advice after encountering legal problems stemming from the failure to comply with state and federal franchise regulations. The penalties for violating state and federal franchise laws can be substantial. Occasionally, our clients simply were not aware that their business format or the opportunity they are selling actually constituted the sale of a franchise. In those circumstances, we rely on our strong working relationships with state regulatory agencies to bring these franchise systems into compliance with minimal negative consequences.
Franchise and Distribution Litigation
Greenberg Traurig’s franchise team also includes experienced and accomplished litigators who are skilled in effectively and efficiently representing franchise and distribution companies in litigation, arbitration, mediation and other alternative dispute resolution procedures. Our franchise litigation attorneys have handled trials and appeals in both state and federal court involving a broad array of disputes, from the simple to the complex, including actions for breach of contract, implied covenant of good faith and fair dealing, vicarious liability, fraud, consumer fraud, underreporting, earnings claims, transfer issues, enforcement of systems standards, unpaid royalties and advertising fees, trade secrets, trademark and copyright infringement, territorial disputes, enforcement of termination rights including restrictive covenants and registration and disclosure and other statutory violations.
Representative Franchise Concepts
Greenberg Traurig has a diverse franchise law practice, which includes representation of regional, national and international franchisors in every aspect of franchising. Our clients range from individual entrepreneurs to internationally recognized public companies. Representative business enterprises that our lawyers have franchised include:
- Family-style restaurants
- Fast food and quick casual restaurants
- Day care centers
- Dental office facilities
- Medspa facilities
- Health care services
- Janitorial services
- Health care equipment
- Juice and smoothie bars
- Laundry and dry cleaning centers
- Convenience stores
- Natural body care boutiques
- Postal facilities
- Retail clothing shops
- Transportation services
- Real estate investment services
- Chiropractic services
Core Team
James Ullman and Jeffrey Wolf lead Greenberg Traurig’s National Franchising Practice. Both have been recognized by Franchise Times as being among the top 100 franchise attorneys in the United States. Jim has 30 years of experience in franchising and intellectual property law and is a frequent lecturer on franchising issues. He has been named as one of the Best Lawyers in America in the category for every issue of that publication and was named in the Phoenix Business Journal’s Best of the Bar 2005 for Franchising and Licensing law. Jeff has nearly 20 years of experience as a litigator. His practice focuses on representing franchisors and product manufacturers in arbitrations and litigation in state and federal court. Jeff’s clients cover numerous business sectors, including the restaurant, hospitality, manufacturing, employment staffing, real estate and petroleum industries. He has represented some of the largest and most widely recognized franchisors in the United States and internationally and is a frequent author and speaker on a variety of franchise topics.
Greenberg Traurig’s franchise team also includes Quinn Williams, an experienced franchise and corporate and securities attorney in Arizona and the southwest, Lorence Bielby, an experienced trial and appellate lawyer who appears in courts throughout Florida on various franchise litigation matters, and associate Daniel Warshawsky.
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