Franchises are some of the world’s most recognizable businesses. There are thousands of franchises registered throughout the United States of America. Franchising is an awesome tool for growing your business. But the process is more complicated than deciding to franchise your business and finding someone to be a franchisee. Drafting a Franchise Disclosure Document and a Franchise License Agreement, creating operating manuals and training programs, creating marketing plans, registering with specific states and more can take a massive effort and requires a capital investment.
One way that some consultants have claimed to save new franchisors effort and money is by packaging the entire franchise setup process under one roof. They will walk a new franchisor through the entire process an assist in the development of every document that is needed for your business to become a franchise. The problem is this creates a major legal issue for a business that is making one of the biggest changes that it will ever go through.
Every jurisdiction in the United States requires that an individual has a license to practice law. Courts have actually ruled specifically that consulting firms that prepare FDDs and franchise agreements are practicing law. This means that you could possibly have a non-attorney doing legal work for your new franchise which is always discouraged. Some of these consulting firms have tried to get around this by having an in-house attorney that prepares the documents. This practice has also been prohibited by the Federal Courts.
Conflict of Interest
Even if a consulting firm was able to prepare your franchising documents for you, there would be an inherent conflict of interest in these actions. The franchise attorney preparing these documents would be an attorney for the consulting firm and not for you. Trust is vital to an attorney-client relationship and it’s impossible to trust the advice of someone serving another. The consulting company has a vested interest in moving past the startup stage and get into operations of the franchise but poorly written documents can doom the franchise long term.
Some consulting firms will have attorney's they "like to work with" but even this can be seen as conflict of interest. A recommended attorney is going to want the consultant to refer future business to them so they are going to work in a manner that appeases the consultant and might not be in your best interest. Even if the consulting firm prepares the documents and you have your own franchise attorney review them, you are essentially paying twice for one document to be prepared.
Your Franchise Attorney
Not only is your franchise attorney able to draft the franchising documents and will not have a conflict in doing so, but he or she will come with additional benefits that will go beyond the expertise of a franchise consulting firm. Representation in commercial transactions, negotiations, closings, real estate transactions, capital formation, franchise finance, antitrust issues and other issues can all be provided by your attorney.
As your business grows, there is a greater chance for litigation issues to arise. An attorney for a franchise consultant likely won’t represent you in these disputes. That means you will have to seek the assistance of another attorney that will be defending documents that he did not draft. From the perspective of an attorney, you always prefer to defend a lawsuit with documents you drafted because you have a comfort level with them.
While franchise consulting firms seem like a great asset because they can pitch themselves as a full service entity to getting your franchise started, you have to be cautious. These consulting firms provide some very useful and beneficial services that a franchise attorney cannot. But they should also recommend that you seek your own counsel for drafting the legal documents.
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