LEGAL REVIEW OF FRANCHISE AGREEMENTS ✅ BUSINESS ✅ SERVICES

Stage 1. Preliminary Consultation and Document Collection

Lawyer's Actions:

Conducting an initial interview with the client regarding the objectives of entering into a franchise agreement.

Determining the jurisdiction (state) where the contract will be concluded.

Requesting and analyzing the Franchise Disclosure Document (FDD) and the draft franchise agreement.

Stage 2. Analysis of FDD (Franchise Disclosure Document)

Lawyer's Actions:

Verification of FDD compliance with Federal Trade Commission (FTC Franchise Rule) requirements.

Analysis of sections regarding franchisor's financial performance, litigation, initial costs, royalties, advertising, territorial rights.

Identification of potential risks, hidden obligations, and restrictions.

Stage 3. Analysis of Franchise Agreement Terms

Lawyer's Actions:

Analysis of key provisions: term duration, franchise fees, territory, parties' obligations, confidentiality clauses, non-circumvention, termination and renewal terms.

Identification of franchisee restrictions, such as: requirements to purchase goods only from the franchisor, non-compete clauses, etc.

Legal risk assessment according to the chosen state's legislation.

Stage 4. Providing Conclusions and Recommendations

Lawyer's Actions:

Preparation of a written legal memo outlining risks and recommendations.
Development of proposed amendments/negotiation points with the franchisor.
Online meeting with the client to explain the conclusions.

Stage 5. Legal Support for Negotiations (if needed)

Lawyer's Actions:

Preparation of amendment requests to the agreement.
Participation in negotiations with the franchisor or their representatives.
Finalization of the agreement wording.

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Regulatory Framework for Franchise Agreements

The U.S. franchise sector operates under a dual regulatory system comprising:

Federal Trade Commission's Franchise Rule (16 CFR Part 436)
State-specific franchise laws in registration states (e.g., California, New York, Illinois)
Business Opportunity Laws in certain jurisdictions
Industry-specific regulations for automotive, petroleum, and other specialized franchises

Key Components of Franchise Agreement Review

Disclosure Document Analysis.
Examination of Franchise Disclosure Document (FDD) for compliance with Item requirements and financial performance representations
Financial Provisions.
Assessment of initial fees, ongoing royalties, advertising fund contributions, and other monetary obligations
Territorial Rights.
Evaluation of exclusive/non-exclusive territory provisions and any radius restrictions
Operational Standards.
Review of mandatory operating procedures, quality control measures, and training requirements
Supply Chain Obligations.
Analysis of approved supplier requirements and purchasing restrictions

Critical Legal Considerations

Term and Renewal Conditions.
Examination of contract duration, renewal criteria, and associated fees
Termination Provisions.
Review of default clauses, cure periods, and post-termination obligations
Transfer Restrictions.
Analysis of conditions for franchise transfer or sale
Non-Compete Clauses.
Evaluation of geographic and temporal restrictions on competitive activities

Sector-Specific Review Requirements

Food Service Franchises.
Special focus on health code compliance and trademark usage
Retail Franchises.
Emphasis on location agreements and lease considerations
Service-Based Franchises.
Particular attention to employee certification requirements
Automotive Franchises.
Review of manufacturer-dealer relationship aspects

The scope and cost of legal review services vary depending on agreement complexity and franchisor requirements.