The Legal Aspect Of Buying a Franchise

legal aspect of franchising

The Legal Aspect Of Buying a Franchise

Buying into a franchise can be a great business opportunity for you to break away from the monotony of a regular job, but every franchise network has certain rules and regulations that have to be followed by all the franchisees.

It makes good business sense to get some professional legal advice before signing on the dotted line.

Since there are a number of legalities and paperwork involved, you should work through all of these with a lawyer who specialises in franchising laws. Here are some things to consider about seeking any type of legal advice for your franchising venture and further information about the legal aspect of buying a franchise:

#1 Seek specialised legal advice

Before purchasing a home or any property, you make it a point to get some legal advice on the contract; the very same concept applies to buying a franchise. Investing in a franchise represents a significant financial commitment and it isn’t wise to take risks.

Seeking legal advice is now considered to be a crucial aspect of the franchise purchase, and the Franchising Code of Conduct now necessitates that the buyer keeps the franchisor informed on whether or not they have actually sought any legal advice.

#2 Hire an experienced franchise lawyer

An experienced franchise lawyer will be well aware of all the nuances and details in the franchise agreement’s clauses. This document shapes the business relationship between the franchisor and franchisee as well as operation of the franchise itself. While any lawyer would be able to follow the legalities that are mentioned in the Franchising Code of Conduct, they won’t be familiar with the relevant past court cases, commonalities & precedents across this industry.

This also means an inexperienced lawyer may inadvertently miss the elements that could be red flags to a specialised Franchise lawyer. The latter won’t waste any time questioning the standard clauses and that can save you some money as well.

#3 Conduct some research on your own

It’s crucial that you get expert legal advice when investing in a franchise, as leaving all the understanding and detailing in the hands of a layer will only limit you. While a lawyer can offer insight and clarity into the various complexities of your franchise agreement and related documents, there is absolutely no substitute for conducting research on your own and gaining some understanding of the legalities and what is required of you as a franchisee.

#4 Protect your business

Legal advice extends beyond the basic reviewing of your franchise documents. You may also need advice about personal guarantees, asset protection, taxation, business structure, consumer law, privacy law as well as employment law.

#5 Be open to paying for legal advice

Studies indicate that more than 50% of franchisees either seek free advice or avoid consulting a lawyer altogether. This lack of investment in expert legal analysis is a worrisome trend because it means that prospective franchisors do not have a complete view of what they are getting into; this also means they are at risk from legal problems if things between them and the franchisor sour in the future.

Keep in mind, that expert legal advice will mean some upfront cost, but it can also save you a significant amount of trouble, time and money in the long term if things go awry with the franchise; it can also prevent you from buying into a dud franchise business model.

If you want to know anything more about setting up a franchise business or want some sound and professional advice, call The Franchise Institute on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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