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Mr. Chapman represents persons who desire to acquire franchises or purchase franchised businesses. He has lectured on “buying a business” for programs presented by the Institute for Continuing Legal Education Lawyers Educational Services, Kean University/Small Business Administration and SCORE (Service Corps. of Retired Executive).

Some important considerations in forming a new business to acquire not only a franchise but an existing business are:

  • selecting the form of business organization-limiting liability
  • selecting a lawyer competent, not only in franchising, but also in corporate, commercial and real estate law
  • identifying the respective due diligence activities for the proposed franchisee and the lawyer
  • selecting an accountant to assist in the reparation of cash flow projections, preferably prior to signing the Franchise Agreement
  • deciding on whether to have compilation or review financial statements
  • use of payroll services-dangers of non-compliance with technical requirements
  • shopping around for insurance coverage, rather than blindly using the insurance agent recommended by the Franchisor

Franchise Agreements

Some major issues in reviewing the Offering Circular and Franchise Agreement are:

  • refund of Franchises Fee or portion thereof before commencement of operations under certain circumstances
  • the “Territory” and scope of protection for the Franchisee
  • length of initial term
  • right of renewal and conditions thereon
  • conditions to right of Franchisee to sell the business with the Franchise or to sell a portion of the ownership
  • effect of death or disability of the principal of the Franchisee
  • limitation of the liability of the principals(s) on the personal guaranty required by the Franchisor
  • limits, if any, on discretion of Franchisor to refuse to grant consents or approvals
  • restrictions on competitive activities of the Franchisee of its Principal(s) after termination

Some of the key issues in the Lease for the franchised location are:

  • the precise language of the use clause
  • length of initial term and synchronization with the initial term of the Franchise
  • Tenant’s option to renew¬†security deposit; amount and form
  • possible limit to the amount of the personal guaranty
  • right of Tenant to assign the lease if it sells its business
  • limits, if any, on discretion of Landlord to refuse to grant consents or approvals
  • Tenant’s signs ¬†subordination of Landlord’s right of distraint to lien of a bank providing financing for the business