The Role of a Lawyer in Helping to Establish a New Franchise Business

• to document the relationship you intend to you have with franchisees in a way encapsulates the offering; and
• identify areas of high risk and provide advice and documentation that responds to the risk in a way that is commercially acceptable to you.

Every lawyer who practices in this area will have a standard or template franchise document that they use. However, every business model is different and therefore the franchise agreement you end up with needs to be tailored to your needs. 

The way to get the best result from your lawyer is to involve them in the planning and development phase, so that they can provide input on issues of a legal nature and advise about issues of a commercial nature that ultimately have a legal impact. 

Examples of some key issues to consider are who will own the intellectual property, what is the exit strategy, how should the supply chain be structured, will there be minimum performance criteria and what will be the methodology for dealing with defaulting franchisees. 

You also need to ask yourself whether or not you will be able to tell if the franchise agreement you receive is worth the money you paid or not. If you are not a lawyer you will be relying on the expertise of your advisor. Therefore, choose a lawyer that you are not only comfortable with but who can display industry expertise and experience. 

Outside of the franchise agreement itself the key area of risk for franchisors is the pre-contract phase — this is time where a prospect is considering whether or not to sign a franchise agreement with you. 

As a result care needs to be taken in this phase by ensuring that the disclosure document (required to be given under the Franchising Code of Conduct) and other marketing materials are complete and accurate. It is also a requirement of the Franchising Code of Conduct that certificates in relation to independent business, legal and accounting advice are obtained from each prospective franchisee. 

Ultimately, franchising is a business model built upon contractual relationships. It is important to get the contractual documents right from the outset.


By Warren Scott, Partner - Mills Oakley Lawyers