Attorney Blog

How Important is Intellectual Property for Franchisors and Entrepreneurs

cinternicola@dddilaw.com (Blog Author)27618 — Wed, 03 Mar 2010 08:00:00 EST

As an owner of a franchise or owner of a non-franchised business you probably place great priority on devoping your businesses intellectual property and because most entrepreneurs are very creative in nature you probably have put a lot of time into your intellectual property. The mistake that is commonly made among franchisors and entrepreneurs of non-franchised businesses though is not protecting their intellectual property the way they should.

Intellectual property, which consists of trademarks, trade designs and any innovations that may be subject to patent, must be carefully and creatively protected to ensure that no one else can use your creative and innovative products and designs that you have put so much time into creating for your franchise or business.

In Charles Internicola's recent blog post, "Intellectual Property: A Two Sided Coin for Franchisors and Entrepreneurs", he mentions four key things you should consider when structuring your intellectual property protection with your legal counsel:

Have a confidentiality agreement in place with certain employees- have any employees with access to confidential information about your product and/or customers sign a confidentiality agreement.
Have a confidentiality agreement in place with your production source - similar to the confidentiality agreement you have with your employees you should have a confidentiality agreement in place with the source who produces your product with respect to the key components or processes involved in the production of your products and supplies.
Periodically review your trademark information with your corporate counsel - as a franchisor or an entrepreneur you should periodically discuss your trademark information with a franchise lawyer or a business lawyer to make sure your trademark registrations are current and to find out if supplemental steps need to be taken to keep your intellectual property properly protected.
Evaluate your product and determine if it would benefit from a design patent - determine whether or not your product would benefit from a design patent and if so start the process to patent the product.

These among other points are things you should consider regarding your franchise or businesses intellectual property and should be discusses with your corporate counsel for your specific franchise or business needs.

Factors to Consider when Buying a Franchise

cinternicola@dddilaw.com (Blog Author)26877 — Wed, 17 Feb 2010 08:00:00 EST

In her article,"Consider With Care: Tips for Evaluating a Franchise Opportunity", Jill McCullough offers some of the following helpful points:

Search new sources about the franchise opportunities and, specifically, the franchisors that you are considering;
Find out if the franchise system you are considering is focused on the franchisee and a quality product and not just interested in a fast growing franchise with lack of support and resources for the franchisee;
Speak with multiple franchisees in the franchise system ranging from franchisees that have been in the business for the past 3 to 12 months and also franchises who have went through a renewal cycle;
Speak to a qualified franchise attorney and your CPA.

One critical point that prospective franchisees should recognize that there are abundant research and information resources on the internet including New York Franchise Law Blog, Franchise King Blog, Rush on Business and FranchisEssentials.

Franchise Success for Franchisors and Franchisees Depends On the Franchisor's Mindset

cinternicola@dddilaw.com (Blog Author)26863 — Wed, 17 Feb 2010 08:00:00 EST

Recently Franchise Attorney Charles Internicola blogged about how franchise success for both franchisors and franchisees alike depends on the franchisor's mindset.

In his blog entry "The Franchisors Mindset: Some Factors That Franchisors and Franchisees Should Consider" Charles Internicola discusses how there are three critical points that must be considered in regards to a franchise system if you are a franchisee looking to purchase a franchise or if you are a franchisor looking to start a franchise or expand a franchise.

Focus on Franchise Training - A franchise that does not offer proper training to their franchisees will cause both the franchisee and, ultimately, the franchisor to fail due to a lack of understanding of the overall goal of the franchise and how to obtain it.
Franchise Growth Must Be Planned and Controlled - A franchise that grows "too fast" in the sense that they do not offer proper training, resources or support will more than likely "crash and burn" eventually. These type of fast growing franchises may seem like a "hot franchise" at the time of purchase but more than being "hot" the franchise needs to be stable and offer room for growth at a controlled and planned pace which will ensure both the franchisee and franchisor are on the same page.
Product Developement Must Be Ongoing - A franchise that does not update and re-invent or continuously develop their product may eventually cause the franchise to fail. There should be a constant effort coming from the franchisor to develop the franchise product which will trickle down success to the franchisee and ultimately cause the franchise system to experience more success.

Ultimately these key steps will help a franchise system to succeed but whether you are a franchisee or a franchisor you should also take into consideration the legal aspect of a franchise system in order to ensure your franchise system is set up properly for success and not for failure. A franchise system whether from the prospective a franchisee or a franchisor should always be evaluated by an experienced franchise lawyer.

Franchise Lawyer Offers Tips on How to Reduce Legal Fees and Litigation Exposure

cinternicola@dddilaw.com (Blog Author)26086 — Wed, 03 Feb 2010 08:00:00 EST

Recently Charles Internicola blogged about how franchisor's can reduce litigation exposure and legal fees in a blog entry titled "Franchisors: How do you Reduce your Litigation Exposure and Legal Fees?". Charles Internicola goes on in his article to explain that the answer to this question is to simply avoid lawsuits. While this answer may seem obvious and may even seem like a simple task to complete but many franchisors struggle with losing time away from their franchise system, which means less time to devote to the structure, improvements and other issues and tasks that may need to be completed, losing money to litigation costs that must be paid out to the plaintiff if a lawsuit is started and the cost of litigation fees that are paid to a commercial or franchise litigation attorney for the cost of the lawsuit. The key reason many franchisors stuggle with this - to be simply put - waiste of time and money? Many times it is because they have not put into practice one of the major ways to avoid the litigation in the first place which is speak with your franchise attorney on a regular basis so that your litigation exposure can be reduced greatly.

Charles Internicola explains that while keeping open communications with your franchise attorney may cost more legal fees than "doing nothing" costs it will the franchisor less in the long run for the following reasons:

The legal fees you will incur from speaking to your franchise attorney to help cut down on litigation exposure will cost far less than the legal fees for a franchise litigation defense matter.
Loss of productivity by you while you are involved in a lawsuit will take away from building your franchise system and is ultimately costing you money
The uncertainty in a litigation matter as to how much you will have to pay out for a matter that could have been avoided if the proper steps to reduce litigation exposure had been taken.

In short - make sure you stay in constant contact with your franchise lawyer if you are a franchisor. It will help avoid unnecessary costs and will help you be able to stay focus on what's most important to your franchise.

New York Franchising Seminar to Offer Insightful Information About Buying a Franchise

cinternicola@dddilaw.com (Blog Author)25310 — Wed, 20 Jan 2010 08:00:00 EST

The New York City Business Solutions is conducting a Franchising 101: How to Buy Your First Franchise or Grow the One You Have seminar on Wednesday, February 17, 2010 between 8:00 - 10:00 am. The seminar will include information about buying and growing your franchise, will teach you about domestic and international opportunities, how to determine the right franchise for you and will include many more information about buying a franchise.

The franchisng seminar will take place at the NYC Business Solutions Lower Manhattan Center located at 110 Williams Street, 4th Floor, New York, New York 10038, Cafe Space.

This is a great opportunity to take advantage of if you are considering purchasing a franchise, in the process of purchasing a franchise or looking to expand your franchise. For more information and to register to attend the Franchsing 101 seminar visit the New York City Business Solutions information and registration page.

Examine Franchise System Value When Purchasing a Franchise

cinternicola@dddilaw.com (Blog Author)23020 — Mon, 07 Dec 2009 08:00:00 EST

Franchise Lawyer Charles Internicola in a recent blog post "Buying an Existing Franchise: Is there Value in the Franchise System?" explains the importance of conducting due diligence when purchasing a franchise or an existing business.

When purchasing a franchise or an existing business most of the steps of due diligence are the same. One exception to the due diligence process that prospective franchisees will encounter is figuring out if there is value in the franchise system.

Value in a franchise system is important to you as a franchisee because, unlike an independently operated business, franchises require franchise fees and royalty payments so ensuring that the franchise system you decide to become a part of is a valuable franchise and is run by a supportive franchisor is key.

When deciding the value of a franchise here are some things you may want to consider:

Higher sales do not necessarily mean that you will be making higher profits - Unlike an independently operated business a franchise requires that royalty fees be paid to the franchisor. Royalty payments are usually based on a percentage of your gross sales at your franchise location.
Make sure the franchise you are considering is properly run - Some franchises offer an adequate amount of help from the franchisor while other franchisors poorly run their franchise and offer the franchisees little to no help.

Investing time into finding out if it will be profitable for you to purchase a franchise based on the value of the franchise will save you time and money in the long run. When searching for the right franchise you will want to ask questions to the franchisor and will also want to speak with other franchisees in the franchise and ask them questions you may have regarding the value of the franchise and the way it is run.

Prospecitve Franchisees Use Franchise Survey System to Research Franchise of Interest

cinternicola@dddilaw.com (Blog Author)22070 — Thu, 19 Nov 2009 08:00:00 EST

In a recent article “Want to Buy a Franchise? See What Survey Says” Richard Gibson explains that potential franchisees now have a new way to research what current franchisees in the company have to say about the franchise.

Franchise research companies such as Franchise Research Institute and Franchise Business Review have started a franchise survey system that allows franchisees to anonymously rate different aspects of the franchise system they are currently a part of. This gives the franchisees the opportunity to express their feelings about the franchise whether it is good or bad without the franchisor knowing what was said. This helps avoid franchisees from being disciplined or treated differently for their honest opinion of the franchise and the way it is run.

For franchisors franchise survey systems can help their business in two ways. If a franchise orders for a survey to be conducted for their franchise all of the franchisees will be asked a set of questions regarding their opinion on different aspects of the franchise then the surveys are combined and a report with a score is given to the franchisor. The results of the survey will help determine if the franchise is being run properly and it is reflected throughout the franchise or if there is need for improvement. If there is need for improvement the franchisor will be able to determine what area needs to be rectified to make their franchise more productive and keep their franchisees happier. If a franchise scores well on the franchise survey it will help attract more potential franchisees to their company.

Franchise surveys are a very useful tool in the initial stages of searching for the “right franchise” but should not replace the proper steps of due diligence. Rather it should be one step of many in your process of due diligence. Those looking to purchase a franchise can use this tool in their beginning stages of research when they are scoping out franchises. If you decide that this could be the right franchise for you the next step you should take in your process of conducting due diligence is contact existing franchisees in the franchise you are interested in. This will help you get a more in depth, personal opinion of the franchise from someone who can let you know firsthand what they experience being a part of the franchise. For more information on conducting the initial steps of due diligence read “Three Initial Questions that You Should Ask Existing Franchisees before Buying a Franchise” by franchise lawyer Charles Internicola.

Quality Pleadings are Important If you are Involved in a New York Business Dispute

cinternicola@dddilaw.com (Blog Author)21903 — Tue, 17 Nov 2009 08:00:00 EST

When faced with business litigation as a plantiff, the complaint will not only serve as the "initiating document" in your litigation but also the blueprint for your entire case. Basically, the quality of the complaint prepared by your lawyer will have a decided impact on the outcome and economics of your litigation. Poorly drafted complaints are subject to costly and time consuming "motions to dismiss" that will not only add to legal fees that you will incur but also result in an inevitable delay in the prosecution and ultimate outcome of your case.

So what is my advice for the business owner/partner faced with the necessity of hiring a lawyer and commencing a lawsuit to protect his or her rights:

(a) Avoid shortcuts and focus on retaining a skilled "business ligation lawyer" with experience with the dispute that you are involved in,

(b) Provide your attorney with as much "relevant"factual detail and evidence as possible and

(c) Do not hide information from your attorney. Communications between attorneys and clients are privileged and subject to protection. If there are factors that you believe may hurt your case it is important that your lawyer know about them.

Factors That Franchisors Should Consider When Setting Franchise Fees

cinternicola@dddilaw.com (Blog Author)21900 — Tue, 17 Nov 2009 08:00:00 EST

When establishing a franchise system one of the primary decisions that you will be required to make relates to setting your initial franchise fee and the royalty rate that will be charged to franchisees on an ongoing basis.

In a current article at New York Franchise Law I discuss some of the factors that "start-up" franchisors should consider and discuss when making this critical decision. If you are considering the idea of starting a franchise and are looking for informatino about the franchising process I definitely recommend the article.

As with many decisions that are involved in the "franchising" process, I believe that the best course of action will be the one that best balances the relationship and rights between franchisor and franchisee.

Refranchised Locations: Should You Consider Buying a Company Owned Franchise Location

cinternicola@dddilaw.com (Blog Author)21528 — Tue, 10 Nov 2009 08:00:00 EST

In a recent article “Refranchising: Should you Buy In?” Jeff Elgin, CEO of FranChoice Inc., discusses a trend that has recently become more popular among franchise companies recently called refranchising or retro-franchising. The process of refranchising is when a franchise company converts a company owned unit or location into a unit that is available to be sold to a franchisee. Refranchising has been becoming more popular in recent years and there have been many franchise companies that have been converting not just one but a significant number of units to a franchise location for franchisees to purchase.

Franchisees considering the purchase of a refranchised location should consider doing thorough research before making a decision to buy into the refranchised unit. Your main concern as a potential franchisee of the company you are looking into and as potential buyer of a refranchised unit should be “why does the franchise want to sell the unit?” According to Jeff Algin there are multiple reasons that can trigger a franchise company to refranchise their units:

Earnings – Franchise companies invest excess capital often to open new franchise locations on their own or buy our other franchisees and then may eventually decide to sell those units to new franchisees.
Operational Experience – Some franchisors feel the need to operate franchise units of their own in their franchise company so that do not lose their operational experience and helps them stay in touch with the issues and details of owning a franchise location.
Training facilities – Sometimes franchisors may buy units for the franchise company but they are not used as franchise store locations but instead for training facilities that can offer hands on training as opposed to classroom training.
First right of refusal purchases – Franchisors may acquire units from an existing franchisee in order to re-sell them to a new franchisee that is more effective for their specific franchise system.

When deciding to purchase a franchise location that is re-opening or a unit that is being refranchised for any other reason always make sure you perform due diligence. To avoid making a bad franchising decision and for more information on how to perform adequate due diligence read Franchise lawyer Charles Internicola's article "Why Due Diligence is Critical when Buying a Business or Franchise".

Purchasing a Closed Franchise Location: What you Should Consider to Make Sure your Franchise Location is Successful

cinternicola@dddilaw.com (Blog Author)20823 — Fri, 30 Oct 2009 08:00:00 EST

Franchise lawyer Charles N. Internicola at the New York Franchise Law Blog discusses franchise opportunities involving the “potential re-opening of a previously failed franchise location”. In the article Charles recommends that when considering these types of franchises that prospective franchisees:

Understand Why the "Closed Location" Originally Failed - When considering the purchase of a franchise location that previously failed you will want to do your research and figure out why the location failed. Do research and find out who was at fault and why. Did the franchise location you are considering not succeed because of its location, the franchisor, the cost of rent, the cost of food/supplies or was it the franchisee who was to blame for the franchise locations closure. All of these questions should be answered before you decide to move forward with considering the purchase of a closed franchise location.
Your Investment Goes Far Beyond your Original Out of Pocket Expense - Often franchisors who are trying to offer a closed franchise location to a new prospective franchisee advertise the franchise location as being offered at a discounted start up cost. Make sure that you fully evaluate the full situation and not just what the initial fee is. Find out how much debt you will be incurring by purchasing the franchise that is being re-sold and how much your monthly charges will be. If your monthly expenses are higher than the amount you will be generating in profits it is probably not worth buying the franchise location and you may want to consider continuing your search for the "right franchise" to purchase.
Don't Just Jump In - Make sure you perform due diligence when considering the purchase of any franchise or business. You never want to jump into a situation that you are not fully aware of. Contact other franchisees from the franchise system you are considering purchasing and ask them any questions you may have. Then, once you have based your decision to purchase the franchise on your due diligence, contact a franchise attorney to review your Franchise Disclosure Document (FDD) and your Franchise Agreement.

Following the steps listed Charles Internicola's article will allow you to make an informed decision when you are considering the purchase of a franchise that previously closed and can be the difference between your franchise location succeeding or failing.

Mistakes to Avoid When Buying a Franchise

cinternicola@dddilaw.com (Blog Author)20166 — Fri, 16 Oct 2009 08:00:00 EST

Joel Libava of the always informative Franchise King Blog offers prospective franchisees with critical information in his post "Buying a Franchise? Here are 4 Dont's". Reflecting on mistakes that should be avoided, Mr. Libava offers the following advice:

"Here are four [mistakes] that the not-so successful [franchisees] will do that you can learn from;

They'll choose the franchise opportunity that seems to be getting the most press. In other words, it's a hot franchise.
They will buy a franchise that is aligned with their hobby, or passion.
They buy what they feel is the perfect franchise, because they can't find a job.
They will forget asking really, really, important questions."

If you are considering the purchase of a franchise read Mr. Libava's post and his detailed articles on this topic. One of the many issues addressed by Mr. Libava is the suitability of replacing a lost job with a franchise. In our current economic climate this is an issue of extreme relevance and Mr. Libava offers some great insights. In my article "Can (or Even Should) you Buy A Business or Franchise to Replace a Lost Job" I discuss some of the factors that you should be considering and discussing with your family members before making a leap into the world of small business and franchise ownership.

Franchise System Trend: Older Generation Seeks to Become First Time Franchise Purchasers

cinternicola@dddilaw.com (Blog Author)19777 — Fri, 09 Oct 2009 08:00:00 EST

In a recent article “Older Operators make a Mark on Franchisees” by Deborah L. Cohen she reports that there is a new, fast growing trend that is starting to take place in todays world of franchised systems that is comprised of people between the ages of 40 and 55. In fact, according to a franchise research firm FRANdata about 46 percent of people who have attended franchise expositions recently have been in that age bracket.

Deborah L. Cohen’s article has many examples of, how she describes, “older operators who are becoming more typical at franchise systems ranging from fast-food chain to corporate cleaning services and retail outlets”. Most of the examples in her article are of those who are in the 40 to 55 age bracket and were not previously entrepreneurs, in fact, the they are mostly of workers that were recently laid off of their jobs due to downsizing when the economy took a turn for the worst. They decided they were done with all of the mergers and layoffs and decided that they were going to invest their money in something where they could own their own business but not be on their own and they found that comfort in a franchise.

While buying a franchise may be an option for you if you were recently laid off or if you just want to own a business there are many things you should consider before buying a franchise. In my blog post “Can (or even Should) you Buy a Business or Franchise to Replace a Lost Job?” I discuss questions you should consider before deciding to purchase a franchise if you were recently laid off of work.

Franchise Trends: Recruitment of Younger Franchisees

cinternicola@dddilaw.com (Blog Author)19284 — Wed, 30 Sep 2009 08:00:00 EST

In her article “In With the New” Wall Street Journal reporter Jonnelle Marte reports on a subtle but growing trend focused on a franchise “youth movement” . Ms. Marte identifies two “service and advertising base d” franchisors (Valpak Direct Marketing Systems, Inc. and WSI) focused on the development of “young” franchisors.

Jonnelle Marte describes in her article that "Last year, Valpak created the Entrepreneurship Award Program in an effort to recruit young people who could open new franchises or take over existing ones as owners prepare to retire. The potential franchisees sign on with the company as salespeople, and if they hit certain goals they get a discount on their franchise fee. Along the way, they get to know the business and the company gets a sense of how they perform".

While there are many components and factors to be evaluated in the purchase of a franchise, without question, the training of a younger generation coupled with real training "could" be a good thing and, quite possibly, a win-win situation. However, if the undercurrent and motivation for this trend is just to expand the base of prospective franchisees and sell to a young and inexperienced demographic then this "trend" could prove to be destructive. For an informative take on this potential hazard, read the Franchise King's take on this "trend" in his post "Why are Franchisors Starting to Target Younger Prospective Franchise Owners?".

Corporate Dissolution a Critical Tool for Small Business Owners Faced with a "Partnership Dispute" with a Controlling Shareholder

cinternicola@dddilaw.com (Blog Author)18780 — Tue, 22 Sep 2009 08:00:00 EST

Minority shareholders of small closely held New York corporations are sometimes subject to wrongful acts of their majority partners and shareholders. That is, with voting control majority shareholders make decisions based on their own personal interest and not the interest of the company.

When faced with a partner and controlling shareholder who is misappropriating business assets or entering into agreements (such as employment agreements with family members) that are not in the best interest of the company your best course of action may be to file a petition to dissolve the corporation.

In "Important Remedy Available to Minority Shareholders of a New York Corporation: Judicial Dissolution" I discuss the remedies available to minority/twenty-percent shareholders and the grounds for dissolution.

"Litigious Franchisors": Increased Franchise Litigation in the Face of an Economic Downturn

cinternicola@dddilaw.com (Blog Author)18321 — Mon, 14 Sep 2009 08:00:00 EST

In the September, 2009 edition of the Franchise Times magazine, Meredeth Barzen and Jonathan Maze, discuss an important and growing trend for both franchisors and franchisees: "increased litigation". As pointed out by Ms. Barzen and Mr. Maze in the current economic client there is a noticeable increase in franchise related litigation. That is franchisors are commencing lawsuits to enforce franchise agreement terms and obligations that in the past may have been overlooked.

It is my experience that this "increased litigation" is usually centered on issues involving enforcement of liquidated damage penalties upon early franchise termination, strict enforcement of post-termination restrictive covenants; early commencement of "non-compliance" litigation and enforcement of accounting rights.

My take on this? Although the current economic climate may serve as a motivating factor to pursue every source of revenue legitimately due to a franchisor, it is also a time to work together and evaluate methods for the overall improvement of a franchise business model that must serve the interests of both "franchisor " and "franchisee". A franchise is only as strong as its weakest franchisee.

When Buying a Franchise you Must Give Serious Thought to "Restrictive Covenants"

cinternicola@dddilaw.com (Blog Author)17935 — Thu, 03 Sep 2009 08:00:00 EST

When buying a franchise, justifiably, you prospective franchisee give serious thought to "upfront" costs and obligations such as (a) the initial franchise fee, (b) start-up costs, and (c) royalties (just three of many due diligence factors to consider). However when evaluating your obligations as a prospective franchisee you must give consideration to and discuss with your franchise lawyer the types of "post termination restrictive covants" that you may be obligating yourself to.

That is, the typical franchise agreement will include "restrictive covenants" that will prohibit you from operating and/or engaging in certain types of business if and when your franchise agreement is terminated. If you are currently involved in a "line of business" similar to the new franchise that you are purchasing this issue may be even more important since you may be subjecting yourself that "post-termination restrictions" that may prevent you from engaging in a line of business that you have participated in (and based your livelihood on) long before your purchase of any franchise.

Partnership Disputes in New York and New Jersey

cinternicola@dddilaw.com (Blog Author)17934 — Thu, 03 Sep 2009 08:00:00 EST

When faced with a dispute with your partner - not an ordinary "business dispute" - but rather a dispute that is interfering with the operations of your business you must consider the necessary steps to preserve your equity and ownership interests. In my article "Partnership Lawsuits in New York and New Jersey: Important Factors to Discuss with Your Lawyer" I outline some of the important factors and legal decisions that a business owner should discuss with his or her business lawyer. One important factor that I discuss is my preference for a negotiated settlement (of a partnership dispute) compared to a protracted and expensive lawsuit. However, it is critical to note that "negotiations" only work if you and your partner are in an equal bargaining position, i.e., you are and continue to be involved in the day-to-day business operations, you have access to the books and records of the business and you maintain daily communications with your customers and clients. If you do not possess equal bargaining power (i.e., you have been locked-out or are denied access to books and records) negotiations may be pre-mature and the best course of action may be the commencement of a lawsuit seeking (a) a preliminary injunction and (b) an accounting. Once an injunction is obtained you negotiating position will be greatly enhanced and so will the opportunity to reach a balanced settlement.

Small Business Commercial Lease Agreements in New York: Limiting your Personal Guaranty may Not be Enough

cinternicola@dddilaw.com (Blog Author)17647 — Sat, 29 Aug 2009 08:00:00 EST

When dealing with "small business" commercial lease agreements, typically, the commercial landlord will require the "personal guaranty" of the small business tenant. Since most small businesses are owned by corporate entities that do not accumulate or maintain substantial assets commercial landlords justifiably require individual personal guarantees.

To limit the scope of a small business owners "personal guarantee" the attorney for the tenant / small business owner will attempt to negotiate a "good guy" clause limiting the scope of the personal guaranty. That is, the individual guarantee will be limited to past due rent and obligations that accrue "prior" to the corporate tenant satisfying certain notice and vacancy obligations. The benefit of the "good guy" limitation is to limit the individual guarantee obligations to "past due" rent and not "future lost" rent. Unless expressly negotiated into the lease agreement itself, the good guy guaranty limitation will apply to the individual guarantor but not the corporate entity which will remain exposed to a potential claim by the landlord for future lost rent.

If your small business corporation maintains and accumulates assets and maintains business at multiple business locations then simply negotiating a "good guy" limitation into your personal guarantee may not be enough. That is you must also protect your corporation from claims of future lost rent should you decide to terminate your lease early.

S Corp, C Corp, LLC?

cinternicola@dddilaw.com (Blog Author)16635 — Sun, 09 Aug 2009 08:00:00 EST

If you are starting a new business or buying an existing business or franchise one critical issue that you will decide on will be what corporate entity to utilize. Assuming that you have already made the wise decision to own and operate your business through a corporate entity (as opposed to individually owning and operating the business) your choice will, typically, be one of three options, that is:

(a) Establish a "Limited Liability Company";
(b) Establish a "S Corporation"
(c) Establish a "C Corporation"

You decision as to which corporate entity would be best for your business will require a detailed discussion with both your accountant and business lawyer as to the "legal" and "tax" advantages/disadvantages of each entity. While the small business owner typically proceed with "LLC's" or "S Corporations" (because both involve "pass through" tax treatment) there are nevertheless instances where a "C Corporation" may be the best vehicle.

The potential utilization of a "C Corporation" is typically overlooked and not the topic of much discussion. However, Wall Street Journal Small Business Editor Colleen DeBaise does a good job of raising this issue in her "Small Talk" column and discussion with accountant Michael Hanley at WSJ.com.

Selecting the appropriate corporate entity will require an "individual" assessment of your personal finances, the type of business you are starting, the required capital expenditures and projections of profits and potential shareholder dividends. Your decision will have "tax implications" for may years to come - take the time to decide on the right entity.

Finding the Right Franchise

cinternicola@dddilaw.com (Blog Author)16532 — Thu, 06 Aug 2009 08:00:00 EST

One of the most difficult and critical tasks for prospective franchisees is finding the right franchise opportunity. This is not an easy task and requires an analysis and evaluation of many factors. While no franchise opportunity is "perfect", over at the excellent Franchise King Blog franchise consultant Joel Libava offers franchisees some great insight into the qualities of the "perfect franchise". According to Mr. Libava the "perfect franchise" should offer the following:

Major Brand Power;
Constant Innovation from Management;
Uniformity;
Solid Training Program;
Extremely profitable franchisees; and
An engaged [utilization] of Social Media

For the prospective franchisee, when evaluating a franchise opportunity give serious and thorough consideration to these factors. Ask questions and make sure that your evaluation goes beyond (well beyond) the franchisors sales literature. For some additional information on selecting a franchise and "franchise due diligence" definitely check out the Franchise King Blog and the "Franchisee Due Diligence" section of the New York Franchise Law Blog

Avoiding Fraud When Buying a Franchise

cinternicola@dddilaw.com (Blog Author)15821 — Sat, 25 Jul 2009 08:00:00 EST

If you are considering the purchase of a franchise chances are you have conducted a number of web searches, filled out some web contact forms, made calls and have spoken with franchise sales representatives. Along with the many rewards and opportunities presented with entrepreneurship and "owning your own business" comes significant risk. Accordingly, before signing a franchise agreement or paying any franchise fee a detailed due diligence evaluation is critical. As I have mentioned in many of my posts and articles one of the most critical "due diligence" tasks includes the simple (but critically important) step of contacting and speaking with existing franchisees.

This afternoon I came across a website maintained by a "former" franchisee of a "Java's Brewin" franchise. While I am not familiar with Java's Brewin, the former franchisee raises troubling allegations of fraud by the franchisor and the franchisor's principal. While the vast majority of franchisors are honest and reputable, be aware that, sometimes, the franchise opportunity presented to you may be vastly different from what it appears to be , i.e., the factual information presented to you (to induce you to buy a franchise) may be inaccurate or the product of fraud.

Take a look at some of the comments by the former Java's Brewin franchisee and understand that when buying a franchise, take your time, consult with an experienced franchise lawyer, contact existing franchisees andleave no stone unturned.

Franchise Agreements, Franchisee Rights and the Introduction of "National Accounts" in a Franchise System

cinternicola@dddilaw.com (Blog Author)15454 — Fri, 17 Jul 2009 08:00:00 EST

As service and product based franchise systems (such as home repair, computer support and ink suppliers) develop and expand their franchise base across the nation, issues arises as to a franchisors procurement of "national accounts" and how the terms of any agreed upon "national contract" will affect the revenues and profitability of franchisees.

In a recent article on this topic, "Franchisees Balk at Handyman Plan", Wall Street Journal columnist Richard Gibson discusses Mr. Handyman International, LLC's negotiation and introduction of a national service account contract with Wyndham Hotel Group. Mr. Handyman International, LLC, as franchisor, is negotiating and implementing a contract providing for repair services to be provided by its franchisees to certain hotel properties of Wyndham Hotel Group.

For franchisees the introduction of a national accounts may represent added revenue and profit opportunities. However, the "devil is in the details" and the terms of any "national contract" must be closely examined by franchisees. Some import factors for franchisees to conside r, include:

Does the existing franchise agreement "carve out" national accounts from the franchisees "protected territory";
How will national accounts located within a particular franchisees territory be services;
Does the "national account contract" fix fees and are the agreed upon fees profitable for franchisees;
Does the franchisor require a higher royalty on fees generated from "national accounts";
Will franchisees be required to "bid" on servicing national accounts;
What fees will the franchisor charge for managing national accounts.

For individuals considering the purchase of a franchise consider and discuss with you franchise lawyer the scope of your protected territory, whether or not national accounts are excluded from your territory and any protections that you could implement into your franchise agreement respecting a franchisors future development of a national account.

Selecting a Franchise based on a "Discounted Franchise Fee" is a Big Mistake

cinternicola@dddilaw.com (Blog Author)15350 — Wed, 15 Jul 2009 08:00:00 EST

In the current economic climate, without question, franchisors have been more willing to compromise and negotiate the terms of the franchise agreement and the agreed upon fees to be paid. In particular, I am aware of franchisors who have "discounted" and reduced their franchise fee as an inducement for buying a franchise. Likewise I have reviewed alleged "articles" and blog posts from attorneys who mention that "reduced franchise fees" may be a reason why now is a good time to invest in a franchise.

While now is the time to negotiate a better agreement with prospective franchisors, if you are investing in a franchise because you could get "a good deal on the franchise fee" you are making a big mistake. Franchise fees are designed to compensate a franchisor for the license and rights that it is granting and to cover the costs of training and assisting new franchisees. If a franchisor is "discounting its franchise fee" you should be questioning "why" and how these discounts may pressure the franchisor to take shortcuts in training and supporting franchisees.

Choosing between franchisors based on whether or not you get a discounted fee can be a big mistake that nay coust you much more in the future. While discounts sound good, select a franchise based on fundamentals such as the strength of the franchisor's trademarks, business systems and opportunity for future success.

Buying and Operating a Franchise in New Jersey: The New Jersey Franchise Practices Act

cinternicola@dddilaw.com (Blog Author)15149 — Sat, 11 Jul 2009 08:00:00 EST

If you operate a franchise in the State of New Jersey or are considering the purchase of a franchise in New Jersey the New Jersey Franchise Practices Act (NJFPA) affords you additional rights that you might not be aware of. The New Jersey Franchise Practices act was established to provide supplemental rights to franchisees in situations involving the termination and sale of their franchise.

In particular, among the various protections afforded to new Jersey franchisees, the NJFPA restricts a franchisors ability to terminate a franchise relationship. Irrespective of the contractual terms of the franchise agreement, in the State of New Jersey a franchise relationship may not be terminated unless:

(a) it is for "good cause" - such as a franchisees substantial failure to perform its contractual obligations; and
(b) the franchisee is provided with at least 60 days prior notice by the franchisor of the franchisor's intent to terminate the franchise relationship or refuse the renewal of such relationship. Said notice must also set forth the reasons for the franchisor's decision.

As such, the NJFPA provides supplemental protections to New Jersey franchisees and imposes additional obligations on a franchisor. If you are considering the purchase of a franchise or facing the termination of your franchise rights you must discuss with your franchise lawyer the protections that may be available to you. If you are a franchisor considering the sale of a franchise in the State of New Jersey, you must insure that your franchise agreement and FDD are consistent with your obligations under the NJFPA.

Be Aware of Forum Selection Clauses in Vendor Agreements

cinternicola@dddilaw.com (Blog Author)14567 — Wed, 01 Jul 2009 08:00:00 EST

When dealing with high cost technology software and equipment expenditures and investments, many business owners sign what appears to be a standard "purchase order" form or invoice without giving thought to the "small print legal terms" included in the agreement. One such "small print" legal term that is commonly overlooked is a "forum selection clause".

Forum selection clauses basically define and restrict what states a party may or may not commence a lawsuit. In technology and equipment contracts many vendors include a forum selection clause that favors the vendors' home state. That is, if your vendor's home state is in California, a forum selection clause contained in your purchase order form may restrict your ability to sue that vendor only in the state of California. So, even if you are a New York corporation and the equipment and services are delivered to you in New York,if you need to sue that vendor, you may be required to commence the lawsuit in California.

Recommendation: have legal counsel review all "large ticket" purchase order forms. If you choose not to have corporate counsel review these agreements then, at a minimum, before you sign anything make sure you review the fine print and cross-out any provision that restricts your ability to sue the vendor. Cross-out forum selection clauses.

Buying a New York or New Jersey Car Wash or Gas Station: Evaluate Potential Road Repairs

cinternicola@dddilaw.com (Blog Author)14282 — Wed, 24 Jun 2009 08:00:00 EST

The purchase of a New York or New Jersey car wash or gas station involves a number of due diligence factors that a prospective purchaser must consider and discuss with his or her business lawyer. In addition to evaluating these "existing due diligence" factors, such as the environmental condition of the property and the financial performance of the business, a prospective purchaser should consider the prospect of "future events" that may affect his or her newly purchased business. In particular, in New York and New Jersey where road repairs are common events, the prospective purchaser of a car wash or gas station should consider the current condition of major roadways leading to the business and the possibility of future road repairs and construction that may affect traffic flows and future revenues.

Evaluating the prospect of "future road repairs" is not an easy task, is not a legal issue and, in most instances, cannot be verified. However, it is critical that the prospective purchaser at least be "aware" of this potential issue. Pay attention to surrounding traffic flows and the condition of surrounding roads. Also, discuss this issue with your business lawyer and evaluate the necessary representations to be added to your purchase agreement.

Factors to Consider When Hiring a Business Lawyer in New York or New Jersey

cinternicola@dddilaw.com (Blog Author)14029 — Fri, 19 Jun 2009 08:00:00 EST

One of the unique benefits of being a "business" lawyer (compared to, say, a negligence or matrimonial lawyer) is that that I am afforded the advantage of observing and learning from my clients. That is, in the process of representing and defending the business interests of my clients, I get to observe (and learn from) the successful work ethic and business principals employed by my clients each and every day. One critical factor reinforced by each and every one of my clients is that a successful business must be focused on delivering "client/customer value".

Applying this critical business principal to legal services, it is clear that the delivery of "valuable" legal services requires the constant delivery of timely and cost effective services that can only be delivered by a specialized lawyer. In a post titled "Measuring Client Value" on my franchise law blog, I discuss the critical factors that should be evaluated in assessing and delivering legal services. As discussed in my post, "client value" requires the balancing of the following four factors;

"Client Value" as a matter of fundamental business principals, can only be achieved by evaluating the interaction and balance between (a) the legal fees charges, (b) the timeliness of the legal services rendered, (c) the quality of the legal services rendered, and (d) the priority of the legal project as measured by the significance of the client's business systems and/or goals that are supported or protected by the underlying legal services."

For more information about my perspective on "client value" and factors that business owners and advisors should consider when hiring a New York or New Jersey business lawyer, I recommend that you read "Measuring Client Value" for a more in depth analysis.

Important Factors for Franchisees to Consider in their Business Lease

cinternicola@dddilaw.com (Blog Author)12852 — Thu, 28 May 2009 08:00:00 EST

Business and franchise lawyer, Charles Internicola, in his Franchise Law Blog discusses some of the important "lease agreement due diligence" factors that franchisees should consider before signing a lease agreement.