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What's the best way to set up a franchise agreement for my business?

I have someone interested in buying a franchise of my business. Should I go to a lawyer to have the franchise agreement drawn up, even though it could be quite costly?
Jeff Elgin answered September 13, 2010
URL: http://www.entrepreneur.com/answer/222154
Sorry to say but you're definitely going to need a lawyer for this one--in fact, an experienced franchise attorney.

There are two reasons for this. The first is that a franchise contract is one that binds both parties to a long term business relationship and you need to make sure it covers everything in order to protect your interests as well as those of the other party. Legalzoom isn't going to be able to handle this type of contractual relationship for you.

Second, there are a number of federal and state regulations that govern the activities of selling a franchise (which is what you will be doing in the eyes of the law. I'm not sure what state you reside in, so you may not have to worry about state regulations but you'll still need to comply with the FTC disclosure requirements.

This means that your attorney is going to have to prepare and file a very significant 21-part disclosure document about your business that you have to provide to any potential buyer before you can sell them a franchise.

This document, among many other things, requires you to provide three years of audited financial statements so if you haven't been doing annual audits (and pretty much no small business owner does) then you'll also have to go through this effort and expense before you even get started on making disclosure documents and franchise contracts.

The bottom line is that preparing the legal and accounting docs necessary to begin selling any franchise can easily cost $100,000 or more so this is not an undertaking that you should enter lightly.

It might be easier to create some sort of business opportunity alliance with this person rather than a full blown franchise but you'll still need to visit with an attorney because there are also all sorts of state disclosure requirements (easier than franchising however) that you'll potentially have to comply with. Good luck.

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.