1. Thank you to our sponsors:
Franchising 101
Presented by the Dallas Bar Association, Franchise Law and Distribution Section
Speakers:
Farheen Ibrahim
Treasurer
Tate Hemingson
Chair
Thank you to our sponsors:

2. Franchising History We’ve all heard of these:
Isaac M. Singer ( ) started modern use of franchising to distribute his sewing machines
Franchise model is now mature and almost anything can be franchised:

3. What Does it Take?
As a franchisor, a business concept that can be scaled and replicated
Franchising is highly customizable
As a franchisee, an entrepreneurial spirit but willing to work within a defined system
All – an understanding of the different components of franchising
All - compliance with all legal laws – including federal and state
This presentation will focus on components of franchising and compliance with laws

4. Why Franchise? ADVANTAGES DISADVANTAGES Quick growth
Less capital expenditure needed to fuel growth
Motivated operators
Leveraged purchasing and advertising power
Reduce risks of day-to-day business operations
DISADVANTAGES
Less control
Less revenue
Harder to change business
Subject to specific rules and regulations (discussed later)

5. Essential Components To A Franchise System
What is a franchise? An agreement that contains:
Substantial association with a trademark;
Payment of a fee; and
(Most states) Prescription of a marketing plan or significant control
Comply with all federal and state laws regarding franchising specifically, business laws, and employment laws
Trademark registration and enforcement
Franchise disclosure document
Franchise agreement and other agreements

6. Trademarks Any word, name, symbol, or device
Very valuable asset to businesses
Also extends to trade dress, which is how the product or service looks
Two ways to gain rights:
Common Law
Register (state and federal)
USPTO registration needed for franchising
Steps:
Conduct a thorough trademark search
File a federal trademark application ASAP
Document everything

7. Franchise Disclosure Document
An FDD is a disclosure document that the franchisor prepares to give to potential franchisees
Content is heavily regulated by state and federal laws as to what needs to be disclosed to potential franchisees
FDD has 23 Items that must be disclosed, examples include:
Franchisor officers and parents and affiliate info
Litigation and bankruptcy history
Trademark, patent, and copyright info
Initial fees, other fees, estimated initial investment
Financial statements and financial performance representations
Franchisee information

8. Franchise Legal Compliance
On a federal level, the Federal Trade Commission has passed the FTC Franchise Rule, which outlines the disclosure requirements and prohibitions concerning franchising
Evolved over the years, last update was in 2007
On a state level, North American Securities Administrators Association, In. (“NASAA”) issued the 2008 Franchise Registration and Disclosure Guidelines
Includes commentary
Highly technical and easy to be non-compliant
Some states require registration, some states require a filing of an exemption, some states only require a federally registered trademark

9. Other Important Laws
Federal, state, local laws, rules, and regulations that apply to all businesses generally
Must also be aware of industry-specific laws – such as menu labeling provisions of the Patient Protection and Affordable Health Care Act, if a restaurant
Franchisors and franchisees must independently ensure compliance of all employment laws – federal, state, and local
Increased activity of both the Department of Labor and National Labor Relations Board
Must be educated on new employment laws, for example, the new overtime exemption – May 2016

10. Franchise Disclosure Document
What to do:
Hire a competent attorney to help draft an FDD
Although not required, seek out consultants to help plan your franchise system for growth
Know your business very well and hire a competent sales team
Plan for a crisis
Plan for growth
What NOT to do:
Do not draft your own FDD based on a competitor’s FDD
Do not rely solely on business consultants or CPAs, especially when it comes to legal compliance
Do not take shortcuts
Do not be afraid of change
Do not market or sell a franchise illegally

11. Franchise Agreement As a franchisor:
Read your franchise agreement, do not depend solely on your attorney
Make sure you understand your obligations and duties under the franchise agreement
Understand your enforcement remedies
Enforce the franchise agreement, especially when it comes to royalties and system noncompliance
Protect your trademark license and enforce your rights to protect your system
As a franchisee:
Read the franchise agreement thoroughly, do not depend solely on the FDD to explain the franchise agreement
Many agreements include a personal guarantee, confidentially and noncompete agreements
Consult a franchise attorney before you sign anything
Do your own research
Negotiate your franchise agreement
Term is usually 10 years, most systems allow you to renew- that’s a long time to be stuck in a bad deal

12. Sounds hard…but there is hope
As a franchisor:
Properly plan your franchise system for growth
Obtain proper insurance
Update your system every year because laws change frequently
Consult your attorney to make sure your FDD is compliant
Obtain a second opinion, if necessary
Properly support franchisees
Plan for a crisis, such as litigation
Educate yourself on your system and on the basics of franchise laws
Do not sell a franchise without properly registering
As a franchisee:
Obtain your own franchise counsel to review the FDD before you sign anything
Seek out a CPA to help decipher the financial representations
Negotiate your franchise agreement
Maintain your own franchise counsel to help compliance with local laws, federal employment laws, and problems within your business
Obtain proper insurance, maybe above franchisor’s requirements
Educate yourself
Do your own research on the franchise system - talk to current and former franchisees before purchasing a franchise

13. QUESTIONS? Farheen Ibrahim Farheen.ibrahim@mullinlawpc.com
Tate Hemingson