Presentation is loading. Please wait.

Presentation is loading. Please wait.

Doing Business 2.0 Washington, D.C. March 13, 2013 9:00 a.m. to 10:30 a.m. Understanding Franchising Law: Your Obligations As A Franchisor and Your Rights.

Similar presentations

Presentation on theme: "Doing Business 2.0 Washington, D.C. March 13, 2013 9:00 a.m. to 10:30 a.m. Understanding Franchising Law: Your Obligations As A Franchisor and Your Rights."— Presentation transcript:

1 Doing Business 2.0 Washington, D.C. March 13, :00 a.m. to 10:30 a.m. Understanding Franchising Law: Your Obligations As A Franchisor and Your Rights As Franchisee Andrew J. Sherman, Esq. Jones Day 51 Louisiana Avenue, N.W. Washington, D.C (202) (phone) HANDOUT VERSION

2 ©Copyright Andrew J. Sherman. All Rights Reserved. Andrew J. Sherman Mr. Sherman is a partner in the Washington, D.C. office of Jones Day with over 2,700 lawyers worldwide. He is the author of 23 books on business growth, capital formation and the leveraging of intellectual property. His twenty-second (22 rd ) book, Harvesting Intangible Assets, Uncover Hidden Revenue in Your Companys Intellectual Property, (AMACOM) was published in October of Other recent titles include the best-selling Mergers and Acquisitions from A to Z, third edition was published by AMACOM in He is also the author of the 2nd edition of the Due Diligence Strategies and Tactics, which was published in the Spring of His Twenty-third book Essays on Governance, will be published June of He has appeared as a guest and a commentator on all of the major television networks as well as CNBCs Power Lunch, CNNs Day Watch, CNNfns For Entrepreneurs Only, USA Networks First Business, and Bloombergs Small Business Weekly. He has appeared on numerous regional and local television broadcasts as well as national and local radio interviews for National Public Radio (NPR), Business News Network (BNN), Bloomberg Radio, AP Radio Network, Voice of America, Talk America Radio Network and the USA Radio Network, as a resource on capital formation, entrepreneurship and technology development. He has served as a top-rated Adjunct Professor in the Masters of Business Administration (MBA) programs at the University of Maryland for 23 years and at Georgetown University for 15 years where he teaches courses on business growth strategy. He has served as General Counsel to the Young Entrepreneurs Organization (YEO) since In 2003, Fortune magazine named him one of the Top Ten Minds in Entrepreneurship and in February of 2006, Inc. magazine named him one of the all-time champions and supporters of entrepreneurship

3 ©Copyright Andrew J. Sherman. All Rights Reserved. Current Trends in Franchising The diversification of industries which deploy the franchising model The sophistication/role/parity of the franchisee The globalization of franchising (inbound/outbound) The impact of technology/Web 2.0 on franchising Challenges in access to financing (The death of the home-equity Line of Credit (LOC) The age of transparency and distrust/Role of the disclosure documents

4 ©Copyright Andrew J. Sherman. All Rights Reserved. Understanding the U.S. Federal and State Franchising Laws Brief history of federal laws Maryland and Virginia are both registration states (with full merit review); D.C. is not …. Obligations of the franchisor Impact of federal trademark law Earnings claims Termination statutes

5 ©Copyright Andrew J. Sherman. All Rights Reserved. Overview of U.S. Franchise Laws Federal and state registration / disclosure laws and regulations governing the offer and sale of franchises State relationship laws governing the post-sale relationship and franchise contract Federal and state business opportunity laws governing marketing plans not centered around a trademark; broad in scope and, therefore, may cover franchises without a registered mark

6 ©Copyright Andrew J. Sherman. All Rights Reserved. U.S. Disclosure Regulation Timeline 1970 California adopts a Franchise Investment Law requiring disclosure and registration (modeled after California Securities Law) Other states begin to adopt similar laws 1975 The Midwest Securities Commissioners Association (now North American Securities Administrators Association or NASAA) develops the Uniform Franchise Offering Circular (UFOC) and UFOC Guidelines States begin to adopt the UFOC Guidelines 1979 Federal Trade Commission (FTC) adopts the "FTC Rule; regulates the sales process and the form, content and use of a franchise disclosure document. FTC Rule does not pre-empt state franchise laws. As a result, the UFOC becomes the standard disclosure format; the FTC format is rarely used

7 ©Copyright Andrew J. Sherman. All Rights Reserved. U.S. Disclosure Regulation Timeline 1986 NASAA amends UFOC Guidelines 1993 NASAA again amends UFOC Guidelines 2007 FTC amends Franchise Rule; institutes a single disclosure format (the Franchise Disclosure Document or FDD). Applies to the entire U.S. Eliminates the prior dual-format disclosure scheme NASAA adopts the disclosure requirements of the 2007 Amended FTC Rule, with minimal additional requirements, as the successor to the UFOC Guidelines

8 ©Copyright Andrew J. Sherman. All Rights Reserved. What Information is Disclosed in the FDD? Franchisor & History Managers Litigation History of Franchisor, Managers Bankruptcy History of Franchisor, Managers Initial Fees On-Going Fees Initial Investment Designated Sources Franchisee Obligations Financing Offered Franchisor Obligations (Training and Support Territorial Protection Trademarks Patents Franchisees Participation Restrictions on What the Franchise May Sell Terms of the Relationship (Termination; Disputes, etc.) Public Figure Involvement Financial Performance Representations Franchise Census Data Financial Statements Contract Forms (22 SEPARATE ITEMS AND A RECEIPT) Note: As Franchisor, be ready to gather and articulate this information clearly. As Franchisee, be ready to review and analyze this information Fairly and objectively.

9 ©Copyright Andrew J. Sherman. All Rights Reserved. Franchise Registration Requirements FDD registration states with full merit review: California, Hawaii, Illinois, Maryland, Minnesota, New York, North Dakota, Rhode Island, Virginia and Washington. FDD filing or notice states (generally no FDD review): Indiana, Michigan, South Dakota and Wisconsin. Business Opportunity (Bus-op) laws – State Bus-opp laws apply to franchises in the following states (but exemptions are available through annual or one-time notice filings): Connecticut, Florida, Kentucky, Nebraska, Texas, and Utah No Filing: Oregon regulates franchise sales but requires no filings

10 ©Copyright Andrew J. Sherman. All Rights Reserved. The Mechanics of FDD Disclosure Under the New Laws The FDD (once registered in ND) must be provided to you the earlier of: Fourteen (14) days before you make any payment to the franchisor or its affiliates or before any binding agreement is signed (the traditional first personal meeting rule has been repealed) You cannot be pressured to sign the Franchise Agreement (or pay any deposit) any sooner Use outside advisors to help you evaluate the offering documents and to understand your obligations under the FA Conduct your due diligence / test the premises which support the business model

11 ©Copyright Andrew J. Sherman. All Rights Reserved. State Relationship Laws Govern the franchise post-sale relationship, i.e., during and after the term of the agreement: Require good cause for termination and non-renewal Procedures for notice and opportunity to cure Ban discrimination between franchisees Prohibit restricting free association of franchisees or changes in management/ownership Financing arrangements Ban rebates Restrict venue for litigation/arbitration

12 ©Copyright Andrew J. Sherman. All Rights Reserved. Good Cause for Termination/Non-Renewal What generally constitutes good cause under State Relationship Laws: Failure to comply with the terms of the franchise agreement Abandonment of the franchise Acts that impair the franchisors trademarks or trade name Insolvency/bankruptcy Loss of the right to occupy the premises Failure to pay franchisor moneys due Fraud or conduct that reflects badly on the franchise system Failure to follow applicable laws Imminent danger to the public health or safety Criminal conviction

13 ©Copyright Andrew J. Sherman. All Rights Reserved. States with Franchise Relationship Laws Arkansas California Connecticut Delaware Hawaii Illinois Indiana Iowa Michigan Minnesota Mississippi Missouri Nebraska New Jersey Virginia Washington Wisconsin

14 ©Copyright Andrew J. Sherman. All Rights Reserved. Summary (For Prospective Franchisors) Develop a business and strategic plan and financial model for your franchising system (make sure it is balanced and mutually profitable) Surround yourself with experienced advisors Build a secure foundation for the franchising system Work through carefully the 100s of business decisions that will be at the heart of your FDD and FA Develop a profile of your targeted franchise and an effective screening and decision-making process (focus on quality not quantity)

15 ©Copyright Andrew J. Sherman. All Rights Reserved. Summary (For Prospective Franchisees) Draft a business plan aligned with your life plans Alignment between your needs and expectations and the reality and limitations of the franchise system (no rose- colored glasses) (navigate through the puffery) Alignment between your resources/level of commitment and the requirements of the franchisors business model Do what you love, not what you think is hot Do your homeworktalk to existing and former franchisees Understand your target market/customer Have a long-term outlook and be prepared for a long- term commitment

Download ppt "Doing Business 2.0 Washington, D.C. March 13, 2013 9:00 a.m. to 10:30 a.m. Understanding Franchising Law: Your Obligations As A Franchisor and Your Rights."

Similar presentations

Ads by Google