Franchising can become an invaluable and necessary avenue for both expansion for growing companies and for self-starting entrepreneurs seeking a secure entryway into business ownership. However, no business venture comes without potential dangers and unforeseen pitfalls to consider. In order to ensure their enterprise can be successful, franchisors must educate themselves, be aware of the legal concerns involved and the consequences for noncompliance. This is where a franchise lawyer can help.
Local, State, Federal, and International Laws
Perhaps one of the biggest potential legal headaches is also potentially the easiest to overlook — the various differences between laws at the local, state, and national levels. The rules can change in ways both large and small once you start crossing domestic and international borders, so it is important to do extensive research and be properly informed before jumping into any new agreements.
A topic that has been frequently debated in government and legal circles is: When does the burden of responsibility for any action shift from the franchisees and their affiliates to the franchisor themselves? Many internal scandals may initially appear to be more damaging image-wise than legally, but errors made by any employee or partner, no matter how distant from the executive level, can carry some risk of liability for those in charge if it can be deemed that the franchisor maintained a close enough relationship with the franchisee.
Franchise Disclosure Document
A certain level of transparency is paramount in a franchising agreement. Whether it is with government bodies, consumers, or franchisees, the owner of the franchise chain must provide disclosure to the appropriate parties in a timely manner, as dictated by the law which is done though a franchise disclosure document. Examples include the beginning and end of any franchise agreement, as well as the establishment of the relationship between the franchisor and franchisee parties in a legally defined sense.
Another possible legal infraction that franchisors might not be aware of is that in many franchising agreements, law requires a certain level of support from the franchisor on behalf of the franchisee. In addition, a perception of a lack of support might also cause deterioration of the franchisor-franchisee relationship and lead to legal action by the latter. The amount of provision between the parties must be precisely defined and agreed upon beforehand.
Changes in Franchise Law
One of the hardest things to account for is sudden change in the law. Local, state, and federal governments are always mulling over both old and new legislation. In some cases, certain leaders can pass new laws with little to no deliberation, and independent rulings by governmental bodies can establish significant and potentially harmful precedents.
As with all these potential legal questions, it is important to stay informed and consult regularly with a franchise lawyer to determine if anything will damage the business. Click here to contact Harold Kestenbaum for a free franchise consultation.