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Franchise Development Companies versus Franchise Lawyers: Who is Accountable (Really Accountable) for Starting Your Franchise?

Date: 05/16/2012 | Category: General | No comments

Many of my clients are “existing franchisors” who have already established their franchise system but want to make changes to their FDD.  The changes that I am talking about are not minor changes but‚ rather‚ changes that take their franchise agreement and FDD from the  “generic” documents that they are and convert them into agreements and disclosures that reflect the true nature of the franchise system.  Most significantly‚ clients want us to take their FDD and convert it into a working tool and blueprint that actually reflects their business.

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So‚ why is a portion of this blog post titled “Franchise Development Companies versus Franchise Lawyers”.  Because‚ many times‚ when speaking with certain new clients – clients who previously utilized the services of a franchise development company but are unhappy with their FDD and franchise system – tell me that they were confused about the FDD development process.  The biggest issue or complaint given by many is that the development company “assigned me a lawyer” who did not give me input into the development process and did not let me know about my options.  Statements that I have been told by clients reworking their FDD‚ include:

  • The development company had their own lawyer prepare documents.  I was told by the franchise consultant’s lawyer that I could ask him questions but I was warned by the attorney that “he did not represent anyone” and that his role was  to prepare documents.  This client further stated that in terms of developing the FDD and my options in setting up my system‚ “the attorney was not an advocate‚ he simply prepared forms”;
  • The development company had their own lawyer who reviewed the documents but did not communicate with me. “I did not know that I had options in how to structure my franchise system”.

Basically‚ in the instances that I mention‚ the clients explanation as to why they didn’t adopted or consider alternative approaches – approaches that they are now looking to adopt  (i.e.‚ like establishing unique criteria for designating a protected territory‚ adopting an alternative royalty structure or differentiating franchise offerings) – is simply that they didn’t know that they had options.  One client explained it the best when she stated “…the attorney [provided / referred by the development company]  told me he did not represent anyone and that his role was to prepare documents for my review.  He would answer direct questions that I asked him but he would limit his response to the document he prepared and not about the franchise system that I was looking to establish. The development company attorney was not an advocate for me”.

Lets be clear‚ I do not speak about all development companies‚ but I do note some of my thoughts about how an independent franchise lawyer may establish your franchise system:

  • The role of a franchise lawyer is not to provide you with forms and generalized information and documents but‚ rather‚ to engage in a “development” process with you that starts off with an understanding of your business‚ your goals and the underlying systems and the assets that have made your business a success;
  • The role of a franchise lawyer‚ is to guide you and work with you toward the development of a franchise system‚ multi-state FDD and Franchise Agreement that reflects your business and serves as a blueprint for the roll out of your franchise system;
  • The role of a franchise lawyer is to understand why you are franchising your business‚ the significance of the step that you are about to take and to serve as a “franchise advocate” for the successful development of your franchise system; and
  • The role of a franchise lawyer – during the FDD development phase – is to establish a franchise compliance program that will work for you after your FDD is complete and assist with your sale of franchises.

Always question – in addition to credentials – whether or not the franchise lawyer that you work with (either directly or indirectly) truly understands what is at stake and that he or she is legally obligated to act for you and you only.  If a franchise lawyer does not directly represent you (and only you) then you must question the value of the service.  Also‚ consider that a qualified experienced franchise lawyer will possess the franchise start-up services required to take you from business owner to successful franchisor.  Also‚ consider whether or not that attorney will be there for you when you have a question after the launch of your franchise and two years after that – or will that lawyer simply tell you that he “simply prepared documents” and he is not responsible?

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