Partnerships: Thoughts of Becoming a Franchise Owner

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Background

Usually, franchising has been marketed without carefully analyzing the legal implications behind franchising. In this regard, there has been a proliferation of websites enticing people to consider franchising. This study selects an article by Brooke (2011) in the website and asks the most important legal questions about franchising. Expected answers are also provided.

Should a franchise lawyer be hired once I sign the franchise agreement?

After signing the franchise agreement, it is expected that, the new franchise owner will devote a lot of time, finances and energy towards the new franchise. Since such sort of input is expected, it would be unfair to such an individual if he or she is unfairly treated in the franchise agreement. It is therefore important to hire a franchise lawyer to deal with any legal issues which may arise.

Will the small business franchise act apply to the franchise agreement?

The small business franchise act was introduced by the federal government to ensure businesses adopt fair practices in franchise agreements; most franchise agreements are subject to this law and it is therefore inevitable to be covered by the law.

Which individual or institution will ensure that all parties within the franchise agreement live up to their obligations?

Since the franchise agreement stipulates different obligations for all parties in the contract, it will be difficult for either of the parties to enforce the contract on its own. In this regard, stipulations governing the enforcement of contractual obligations under the small business finance act will apply.

Say the franchise agreement involves a giant corporation like McDonald, will individual guarantee and obligations be enforceable, and what kind of obligations apply to a franchise holder in such circumstances?

In instances where the franchise agreement involves a giant corporation, individual guarantees may not be required because such franchises involve public limited companies, which recognize the company as a legal entity, separate from its owners. The obligations of the franchise holder under such an agreement revolve around ensuring the franchise standards stipulated under the agreement are adhered to.

If the franchise holder is not a corporation or company, does he or she hold the right to transfer the franchise to a company he or she owns?

Transferring the franchise to a company that, the franchise owner holds, amounts to a breach of the franchise agreement because during the formation of the partnership agreement, it was agreed that, the franchise would fall in the hands of an individual and not a company. If the franchise holder desired to run the franchise under a company, that he or she owns, he or she should have done so initially, and refrain from taking the franchise under a personal name. Moreover, if the franchise is run under a company, while it is registered under an individual, it may be difficult to realize damages if a legal proceeding arises because the company running the franchise may be a separate entity form its owner (legally). This may therefore cause a lot of problems in the franchise agreement.

What sort of limitations do affiliates of the franchise holder (such as family members) have on the franchise agreement?

Legally, the affiliates of the franchise holder are regarded as foreign parties to the franchise agreement.

Would the restrictions on the franchise holder’s agreement conflict with any personal or business interests?

The interest of the franchise holder should be assumed to be the interest of his or her affiliates. There should therefore be no conflict of interest between the two parties.

References

Brooke, B. (2011). Benefits Outweigh Risks In Franchising. Web.

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