How to Work With Franchise Brokers and Sell Franchises

Franchisors and franchise brokers have a common interest in expanding the franchisor’s operations, but they also have divergent interests that can lead to conflicts and legal problems. The primary difference is that the franchisor will have a long-term relationship with the franchisee, but the broker is generally out of the picture once the franchise sale is closed.

Reconciling that difference is a critical component of how to work with franchise brokers to sell franchises. The attorneys at Franchise.Law represent franchisors throughout the United States in transactions with brokers. Our North Carolina-licensed lawyers maintain a national practice with a focus on federal and state franchise laws, rules, and regulations. Our expertise extends to managing and resolving legal issues that can arise when franchise brokers are involved in sales.

What Are the Legal Risks of Working With Franchise Brokers?

Franchisors who are considering working with franchise brokers might focus on how the broker can help expand the franchisor’s business while avoiding legal issues that often affect franchise sales. A majority of brokers provide strong professional services, but the incentives that are inherent in the sales process can lead to unanticipated legal problems:

• Brokers that use aggressive sales tactics might make exaggerated representations about a franchisor’s sales and financial strength
• New York and Washington State both require franchise brokers to be registered, and other states require disclosure of the broker’s role and compensation arrangement; failure to register or disclose might delay or prevent the franchise sale
• A broker’s oral promises and representations that are at odds with the disclosures in the business’s Franchise Disclosure Document (FDD) can lead to fraud allegations by a franchisee
• Brokers that rush to close franchise sales might not adhere to FDD timing requirements, such as delivery of an FDD within specific time limits or early demands for payments, which might violate the Federal Trade Commission’s (FTC) 14-day waiting period that must be observed before a prospective franchisee can sign a binding agreement with or pay any amounts to the franchisor

When you retain the services of an experienced franchise attorney, including any of the lawyers at Franchise.Law, their oversight can prevent these problems from impeding your franchise sales and expansion efforts

How Can Legal Representation Reduce These Legal Risks?

A knowledgeable franchise lawyer could quickly identify potential issues when a franchisor works with a broker, including the impact of specific state laws and FTC timing mandates, and prepare a set of strict guidelines that the broker will be contractually obligated to follow. Those guidelines will outline the representations that the broker is authorized to make when selling a franchise. A good franchisor-broker agreement will also impose liability on the broker for unauthorized representations.

A franchise attorney could also verify a broker’s registration and prepare necessary disclosure documents that will be signed when the franchise sale closes. An attorney’s oversight could also verify that all communications with a franchisor, broker, and franchisee are consistent, with no deviations from formal disclosures in an FDD and no oral warranties or guarantees that contradict anything in the final sales agreements. A legitimate franchise broker will appreciate that this oversight will shield the broker from liability as much as it protects the franchisor from unwanted legal problems.

Contact Us for Help Working With Franchise Brokers and Selling Franchises

Get in touch with Franchise.Law if you are wondering how to work with franchise brokers and sell franchises. Our attorneys have experience with federal franchise rules and state-specific laws and regulations in all 50 states. Our goal is to provide excellent legal services for every franchisor.