Chagrin Falls and Cleveland Franchise Attorneys Helping Franchisors and Franchisees Comply with State and Federal Law
Providing professional compliance and business advice in Ohio
Franchising relationships have two key participants. The franchisor is the established business that is permitting someone or some entity the right, for a price, to use the franchisor’s business model and brand for a specific time. The franchisee is the individual or company that is acquiring the right to use the franchisor’s model/brand. The success of each depends, in part, on the success of the other. Franchisees typically have a direct stake in the business so they have a greater incentive to succeed than an employee.
Like in any other business enterprise, a potential franchisee or franchisor must understand the law, and those laws vary from state to state. These laws are complicated and unforgiving. Franchising agreements and offering circulars must meet certain criteria and statutes. If they do not meet these regulations, problems—both legal and otherwise—are often sure to follow. At Gertsburg Law our Cleveland franchise law attorneys are well versed in the industry, on both the transactional and litigation ends.
Franchise compliance requirements
The Federal Trade Commission’s Federal Franchise Rule requires that franchisors must provide a detailed disclosure statement to prospective franchise purchasers. The disclosure statement must include 23 specific items of material information about the franchise, about the officers of the franchisor, and about other franchisees. Some of the 23 pieces of information cover existing litigation, any bankruptcy filings, initial fees, the estimated initial investment, product and service restrictions, obligations of the franchisee, the advertising the franchisor will supply, the territory involved, trademarks, patents, copyrights, the duty to actively participate in the franchise, renewal terms, transfer rights, dispute resolution procedures, and other information.
Franchisors should consult with our Chagrin Falls franchise lawyers to make sure their disclosure statements cover all 23 federal points and any additional Ohio disclosure obligations. Because the FTC does not review the accuracy of the franchisor disclosure statement, franchisees should have our experienced lawyers review the disclosure information before they enter into any contracts.
Franchisors should expect that franchisees will contact any other listed franchisees to get their viewpoint. Likewise, franchisees should visit a few other listed franchisees to learn their experiences.
Both the franchisor and the franchisee should understand that the contract that formally establishes the franchise relationship may be deemed a fully integrated agreement – that oral promises may not have any legal weight. All agreements and promises should be in writing.
Ohio franchise law
Most, but not all, franchise sales are subject to the Ohio Business Opportunity Plan Law, which applies to many, but not all, sales of franchises in Ohio. This law:
- Prohibits untruthful statements and misrepresentations.
- Requires disclosure of relevant information to the franchisee.
- Permits the franchisee the right to cancel the franchise agreement within a five-day cooling off period after the date the agreement was signed.
- Allows for the right to sue the franchisor for damages (they can be tripled), attorney fees, and other forms of relief if the Ohio franchisee can show the franchisor did not comply with the Ohio or federal disclosure requirements.
At Gertsburg Law, we work to help franchisors prove they complied. Our Cleveland franchise attorneys also file complaints when franchise disclosure statements were improper.
Most franchisors have an operating manual. Franchisors should review the manual with our Chagrin Falls franchise lawyers to make sure it is current, that it addresses any necessary legal issues, and that it applies to the new franchisee. Franchisees need to obtain the operating manual and study it before entering into a franchise agreement. Both franchisors and franchisees should understand the unique business opportunities and practical business management issues that franchises present.
Speak with a trusted, professional Ohio franchise lawyer today
Franchisors should prepare ahead of time to make sure they comply with Ohio and federal disclosure requirements. Franchisees should consult with experienced Chagrin Falls and Cleveland franchise attorneys well in advance of signing any papers. For franchise help now, call Gertsburg Law at 440-683-6383. You can also make an appointment through our contact form.