Illinois Franchisor Attorney
Becoming a franchisor is a great way to grow a business quickly without having to invest in actual inventory, land, or other start-up costs. Rather, a franchise system allows a franchisor to sell the ideas and processes of a successful business model. Instead of investing more money to grow a business, a franchisor can even make money by selling the business model.
For example, if you have successful coffee shop and want to open another branch, instead of spending more money to hire employees, commit to a new location, and spend money on marketing, instead, you can invest in creating a franchise system and sell the franchise system and get a quicker return on your investment.
However, being a franchisor comes with great responsibility and there are many laws that a franchisor must follow, so it is important to connect with an experienced franchisor attorney.
Franchises also can grow more quickly if franchisors sell an exclusive territory for franchisees to develop. Franchisors can do this by using a sub-franchisor agreement or multi-area development agreements. When franchisees get involved with selling a territory for a franchise, the franchisor gets a larger and faster return on their investment.
Motiva Business Law helps franchisors, just like you, set up the franchise legally so the franchise does not come crashing down due to violations of the law or lawsuits. We will create your Federal Disclosure Documents (FDDs) and franchise agreements, and any other necessary documents you need for your franchise system.
We serve businesses in Oak Brook, Burr Ridge, Naperville, Hinsdale, Lombard, Addison, Downers Grove, Oak Park, Darien, Chicago, Lisle, Westmont, Willowbrook, Clarendon Hills, and the Chicagoland Area.
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When is the Best Time for a Franchisor to Work with a Franchise Attorney?
The best time to involve our franchise attorneys is when before you want to sell your franchise system to a franchisee. The law requires franchisors, in most situations, provide a Franchise Disclosure Document (FDD) with a list of 23 disclosures. Selling a franchise without a FDD or franchise agreement can result in serious fines to a franchisor. In addition, if a franchisor sells a franchise to a franchisee illegally and the franchisee violates the franchise agreement, a franchisor will likely not be able to recover its rights because the franchisor is in violation. Many states also require that a franchisor register their franchise. Our Firm likes to get involved early in the process to help a franchisor do things right the first time. We help draft:
- Franchise Agreements
- Franchise Disclosure Documents (FDD)
- Multi-Unit Franchise Agreements
- Area Development Franchise Agreements
- Sub-Franchisor Agreements (also known as Master Franchise Agreements)
Benefits of Working with a Franchise Lawyer
Many business owners often “license” their business model and trademark to a franchisee. This is commonly known as an “accidental franchise” and a franchisor may be in serious violation. The Federal Trade Commission (FTC) defines a franchise (known as the Franchise Rule) as (i) the grant of a trademark, (ii) the franchisor exerts or has the authority to exert significant control or assistance over the operation of the business, and (iii) the franchisee pays the franchisor or its affiliate a fee (typically at least $500).
As you can see, a franchise is pretty easy to create and definition is pretty broad. There are some exemptions, but this is the general rule that anyone who is looking to sell their business model should be mindful of.
Multi-Unit Franchise Attorneys
Opening one franchise is tough work, but buying and overseeing multiple franchises not only requires extensive business expertise, but also the right legal team. Motiva Business Law helps franchisors to develop their multi-unit franchise agreements in both Illinois and Florida. Our Firm can help you navigate complex legal decisions, assist with creating key agreements, and your business is compliant. Our Firm understands that when sell multiple franchises, you have a big vision. Our goal is to make sure that vision has the legal foundation you need to continue to expand and scale your business.
Understanding Franchisee Exemptions
Franchisees who are more experienced have an exemption related to franchisor disclosure. This exemption applies to transactions with large franchisees where the franchisee (a) possesses a net worth of at least $5 million (as of July 1, 2020, this monetary threshold of $5 million had been increased to $6,165,000 by the FTC to account for inflation), and (b) the franchisee has been in business for at least 5 years.
There is also an exemption in place for large investments. This exemption is available to franchisors when the franchisor and potential franchisee have relatively equal bargaining power and business expertise. If the potential franchisee can afford a large investment, then it is more likely that the potential franchisee is experienced in business and has the resources to protect itself. In Illinois, the initial investment amount must be $1 million. Additionally, franchisors must submit certain information to the Attorney General to apply for the exemption.
If you have questions about the aforementioned exemptions, contact Motiva Business Law to schedule a consultation with our franchise attorney.
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When you are selling your franchise, your obligations include providing certain disclosures to a franchisee in a document called a “Franchise Disclosure Document” (FDD) and a Franchise Agreement. Franchisors also must allow a franchisee at least 14 days to review a FDD and franchise agreement before being expected to sign. Once you sell your franchise, your obligations include:
- Maintaining your trademark and brand.
- Providing your operational systems and manuals.
- Provide training and ongoing support.
- Not selling conflicting territories to franchisees.
By franchising your brand, you will take the role of the franchisor, whereby you create a business that others can copy, but without becoming investors in your actual business. To become a franchisor, there are certain requirements such as creating an FDD and clear written business model, train franchisees, providing support, and collecting payments.
For more information, read our article franchisee vs franchisor
Technically, franchisees do “own” their franchisee business. However, even though they operate independently and own the assets they purchased, such as equipment and furniture, they do not own the overall brand. Franchisees also cannot deviate from the franchisor’s business model without the franchisor’s consent. However, a franchisee can sell his or her business with the franchisor’s consent.
- Fees: This includes the initial franchise fee and ongoing royalties and other fees.
- Territory: The area where the franchisee has the exclusive right to operate.
- Operations: Guidelines and standards for the operation of the franchise.
- Intellectual property: The use of trademarks and intellectual property.
- Support: The extent to which the franchisor will assist the franchisee.
- Termination and renewal: The conditions under which the parties can cancel or renew the agreement.
To establish a franchise as a franchisor, the legal costs can cost from $60,000 upward, to create the whole system.
A franchisee can negotiate certain terms of a franchise agreement. Generally, a franchise system needs to be uniform among franchisees, so there are some limitations regarding the royalties and fees. Otherwise, how much a franchisee can negotiate depends more on each party’s leverage.
- Guiding you along the franchising process, navigating the legal aspects of the agreement, and helping you make informed decisions.
- Review the FDD and franchise agreement to ensure your deal is profitable and has the most favorable terms. Also, a lawyer will help you understand the implications of the contract.
- Identify and minimize risks related to the transaction
- Draft, review, and negotiate other required contracts, such as lease agreements and employment agreements.
- Ensure you comply with the local, state, and federal franchise laws.
Whether a franchisee can own more than one franchise depends on the franchise agreement. Some franchise agreements restrict a franchisee from engaging in all other businesses, while other franchises only prevent the franchisee from owning competing businesses. However, the ideal and most profitable way to be a franchisee is to be a franchisee of more than one location. Franchisees do this by entering into multi-unit franchise agreements or area development agreements. Over time, a franchisee makes more money with less effort since the franchisee is just repeating the same business model over and over again.