Yes. The franchise disclosure document (“FDD”) is the primary legal document required to offer and sell franchises in the United States. Only lawyers can legally and ethically create legal documents for a third party.
Investing in Franchising
Franchising is an accelerated growth strategy that allows a company to expand to 10, 100, or even 1,000 locations at a speed that is typically not feasible through execution of other growth strategies. This is what makes franchising compelling for most business leads. Entrepreneurs can grow a brand they are passionate about from 5 to 100 locations with significantly less capital than would be required through company owned locations.
However, costing less than alternatives does not mean franchising is a cheap strategy to deploy. Franchising requires a significant investment of time and capital at start-up and when providing operational support to franchisees. A company should not franchise if they are not willing to invest sufficient time and capital into every aspect of developing a franchise system. This includes an investment in legal.
Franchisees are taking a leap of faith when they pay your business for the right to open a franchised location. This is particularly true when your company is an emerging brand. Franchisees expect systems and processes that work, and they expect support. Becoming a franchisor comes with the responsibility to be a good trading partner. The relationship starts with the initial disclosures and legal agreements.
Franchise Attorneys Add Value
No one enjoys paying a lawyer, but the cost of hiring a competent franchise lawyer to create the FDD is negligible compared to the potential cost of not doing so. Preparing an FDD requires specialized knowledge of various state and federal laws. Even within the practice of law, franchising is a niche area where relatively few attorneys are well versed. Preparing the FDD and maintaining legal compliance is an essential cost of doing business if you want to succeed in franchising in a legal and ethical manner. Click here for a 10,000 foot view of federal franchise law or click here for state-by-state franchise requirements.
Franchise Attorneys Work As Part of Your Team
The right franchise attorney can prove indispensable throughout the growth and development of the franchise system. The immediate benefits of hiring an attorney to prepare the FDD come through guidance, accessibility, and the timely creation of a high-quality disclosure document with enforceable contracts. The typical franchise agreement is for a 10-year duration. The terms matter!
Our law firm works with franchisors from launch to maturity providing prompt and reliable legal support. We are available on-demand as outside general counsel by text, call, or email – often for a fixed monthly rate. We firmly believe that success in franchising requires a collaborative approach between business and legal. The business of franchising is vastly different than the business of operating a storefront.
Avoid Franchise Consultants Offering To Draft the FDD
Some franchise consultants will offer to draft the FDD — if this happens – RUN!
Aside from engaging in the unauthorized practice of law, these types of firms often create FDD’s from standard templates that are neither industry specific or tailored to your business. They are often extremely poorly drafted, don’t say what the parties intend, don’t comply with the law, and expose the franchisor to legal problems.
The worst part – its often cheaper to pay a competent franchise attorney to draft the FDD. Our firm typically charges $18,000 – $25,000 to draft an FDD. While drafting the FDD, we typically spend 20-40 hours consulting with our clients about the nuances of franchising and we work hard to ensure the FDD terms accurately reflect the business model and philosophies. We tailor legal provisions to reflect how the franchisor wants to provide support and approach problems that may arise.
Consultants can provide substantial value and accelerate growth, but they are not well suited to create the FDD. Each disclosure document is tailored to meet the goals and objectives of the business leads. Great consultants pay dividends in (i) advising on the business side of franchising and (ii) recruiting prospective franchisees. They just shouldn’t draft FDDs.
Have questions about hiring a franchise attorney to draft an FDD?
Our law firm offers free consultations by phone or video conference. Or, you can shoot us an email through the Quick Contact below. We’d love to learn more about your business and discuss how we could help your idea of franchising become a reality.
