Selecting a Lawyer for Your Emerging Franchise Brand

Selecting a Lawyer for Your Emerging Franchise Brand

There is no special credential to practice franchise law. Like many other practice specialties, an attorney can simply identify themselves as a franchise lawyer with little or no experience.

Since franchising is a method of doing business, it transcends many industries, from quick service restaurants to barber shops to commercial and residential service businesses. Each underlying business model is unique, has special applicable laws, and requires a level of experience to command expertise. Few law firms have experience in all business models, but many firms have particular expertise in serving one or more.

Over the past decade, large regional or national firms have consolidated the landscape by acquiring practices and firms, so franchise lawyers nearby or other offices may work on franchise matters.

Otherwise, some small firms compete for national registration and disclosure work, day-to-day representation, trademark registrations, and dispute resolution.

There are firms that specialize in real estate leasing, state registrations, and specific transactional projects, but who do not go to court.

Then, like all practice areas, there are hundreds of solo or small practitioners who identify as franchise lawyers who bear further investigation.

In selecting a lawyer, try to identify firms with experience, expertise, and results.

You want an attorney who has experience representing people like you in similar franchise matters. Make sure they have experience representing franchisors, and not franchisees in isolated transactions. Ideally, you would connect with multiple franchisor references who have undertaken the same or similar project, who will “vouch” for the experience as a customer. Ask whether the lawyer was responsive, or whether every question generated hours of research. Ask whether projects were handled efficiently and staffed by the appropriate number of lawyers. Ask who you’ll be working with day-to-day and their relative cost and experience.

Distinguish between flat fee projects and hourly representation and whether the current project requires the same level of expertise or more specialized representation.

Initial drafting projects, like FDD drafting, can almost always be acquired on a fixed or capped fee. Here is where the world is not created equal. Some folks want the cheapest legally compliant FDD they can find. Most new franchisors are making a substantial investment and want to make sure that they protect the existing business, and that the franchise system they create is marketable to third parties in the future.

In our due diligence practice, we review existing franchise documentation of acquisition targets to identify risks to revenue as well as determining how closely these contracts parallel industry best practices. The mistakes brands make early on often are perpetuated repeatedly and often pollute the valuation. Sometimes people start with a terrible form, other times people obtain bad advice, and most often, they obtain new counsel and negotiate radical changes to the legitimate documentation.

The FDD is a federally prescribed document, which requires certain affirmative statements or negative statements verbatim, and each FTD. This required consistency in disclosure is sometimes perceived by the unknowing as a boilerplate document. Prepared properly and with the appropriate level of training and education, the creation of the FDD is a substantial undertaking.

The most important section is Item 19, the Financial Performance Representation, because it adds the reward dimension to the risk/reward analysis and provides a safe harbor to disclose such information if prepared properly. By way of review, you can say anything in Item 19, so long as the event or transactions have actually transpired. In other words, you can’t make any projections, extrapolations, or other fictional tools to approximate reality. If you know anything about the franchise sales landscape, you know brands compete vehemently based on unit profitability, which they demonstrate in their Item 19. Entirely new metrics have been created by one brand and then adopted by others. As part of your win due diligence, hopefully, your lawyer has assembled and given you a chance to review the disclosure documents of competing brands, or brands with similar investments or who seek similar franchise prospects and that your metrics are respectable given the landscape.

Evaluating a Franchise Lawyer.

So, you made an appropriate investigation, and it appears that your lawyer has experience in matters like yours. Lawyers genuinely committed to Franchise law are often members of the International Franchise Association, and the American Bar Association Forum on Franchising, and often active within those organizations-in leadership, teaching sessions, publishing articles and being active politically to protect the franchise landscape or obtaining any business certification like a CFE.

Check the trade publications.

Franchise Times awards its Legal Eagle annual designation, Entrepreneur Magazine has its top 10 Franchise Attorney’s listing, and many other reputable publications rate franchise lawyers based on actual client feedback.

Check to see whether the firm or lawyer is listed in Chambers & Co., an international lawyer listing and rating service. Check the law school, undergraduate major and LinkedIn experience.

Google the lawyer. See if they appear in recent relevant articles on franchising on your side. See if they are within the group of top-level experts identified elsewhere.

If you have a litigation matter, don’t assume you should be getting advice from the original author unless they have experience in litigation.

Once you have your final documentation, a good franchise attorney will give you an opportunity to meet brokers, consultants and other suppliers who have successfully helped other franchisors navigate the franchise landscape. The right lawyer will encourage you to be knowledgeable and insist that you commit to education and networking with others to learn as much about franchising as you know about your underlying business. A good lawyer will give you access to existing clients to learn from people a little, a lot and way ahead of you in the food chain.

The franchise landscape changes often. New issues emerge every year as unique challenges facing franchisors. This year, the right franchise lawyer will have experience arguing and convincing franchise auditors to maximize the income recognition of the initial franchise fee by drawing on their experience representing other brands and prevailing wage in other similar arguments.

Also, if you operate or intend a license for transact business in California, with its rapidly evolving labor law, seek counsel from a lawyer representing similar businesses already doing business in California, or the desired geography.

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