Timeline of Franchise Legal Preparation
By: Harold Kestenbaum
A Reminder: The Legalities of Launching a Franchise Take Time
As businesspeople, we give a lot of thought to time. We think in terms of Q1 through Q4, hours in a week, and when is the best time to do this or that? Regarding launching a franchise, we tend to compare the seasonal aspects of both the franchise industry and the industry in which we are operating, and choose the best time of year to get started. What we don’t often think of – in terms of time – is how long it takes to line up our legal ducks. Let this serve as a reminder that without the legalities, a franchise can’t get off the ground, and nobody has time for that.
First things first, you will need to find a franchise attorney. In the U.S., franchising is a specific industry with its own regulations and legal requirements that vary by state. It’s important to take the time to find an attorney who is a good fit for you, your industry, and your interests. Once you retain a franchise attorney, the timeline can begin to take shape.
Business owners who become franchisors, are often surprised at the amount of time it takes to legally ready their brand to sell franchises. They may have customers or investors who come into their businesses often, asking if they will franchise or when they can “buy in” to the brand with their own location. That’s great, but do you know it is illegal to market a franchise without having your legal documents in place? It is. And did you know there are a slew of terms that are illegal to use when talking about or marketing your business? There are. Therefore it is important to work with an experienced franchise lawyer. You don’t want to get into trouble before you are even off the ground.
Here are some things to consider:
- Have you created a legal franchise entity for your business?
- Is the name of your company trademarked? How about the logo, or your tagline?
- Have you discussed what your legal documents will look like, or how long they will take to draft? A Franchise Disclosure Document (“FDD”) alone can be upwards of sixty pages, not to mention your Franchise Agreement.
It’s a lot to think about when it comes to forming a timeline to launch a franchise, and this is only if everything goes smoothly.
When it comes to time, you should always allow for hiccups. Does this mean your legal team is slacking, or that someone dropped the ball? No. What can happen however, are delays in processes. For example, what if the name you have been operating your business under for twenty years in New Hampshire, is already legally registered and working in Nevada? It takes time to fight to keep it. It also takes time to change it and rebrand. Both are delays in your timeline.
What if you want to sell franchises in one or more of the fourteen registration states? Registration states require franchisors and franchisees to file specific paperwork to market and sell franchises within that state. Each have their own set of guidelines. Some are relatively efficient; some can take months.
When it comes to franchise documents, they too take time to create. The FDD is a hefty piece that must be legally updated each year, during a certain time of year. This document is so regulated that prospective franchisees must sign to acknowledge receipt of it, so keeping it current is important. The Franchise Agreement is the contract that spells out the nature of the relationship between the franchisor and franchisee, by which all litigation will be based. Both documents take time to draft, proof, revise, and complete.
Launching a franchise is very exciting, but it takes time. Be sure talk with your franchise attorney about a realistic timeline so you aren’t disappointed when you find out just how long the process can take. Once it is complete, however, a new chapter for you and your business can begin.
The franchise lawyers at Spadea Lignana are responsible for drafting and maintaining Franchise Disclosure Documents, searching and filing trademarks, helping with M&A due diligence, litigating disputes and handling general legal needs for hundreds of franchisor and franchisee clients nationwide. The experienced partners have been executives for national franchise brands, and some were franchisees themselves, providing an unmatched business perspective giving clients real world practical solutions. Visit www.spadealaw.com.
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