Choosing to offer a business model as a franchise opportunity can be an excellent way to increase market penetration and expose a product or service to a broader audience. However, this is always a momentous business decision. Before making this decision, people must be sure to understand how this will affect not just their existing business but also their legal obligations.
There are many common challenges in franchising a business in North Carolina that concern everything from supply chains and logistics to legal liability. Creating a franchisor/franchisee relationship places legal obligations on a franchisor beyond simple business concerns like competition and marketing. Failures to meet these obligations could lead to significant legal consequences and challenges at both the North Carolina and federal government levels but a franchise entrepreneur lawyer could help ensure compliance.
The most direct way of creating a franchise opportunity affects a business owner is the change in cash flow and income channels. At the simplest level, offering a franchise opportunity allows a business owner to leverage a successful business model into a source of relatively passive income. Of course, there is no such thing as guaranteed success in business and improper vetting of a potential franchisee could lead to that franchise location failing at a loss to the franchisor of both future revenue and possibly the filing of a lawsuit if proper procedures were not followed.
A common financial challenge involves properly evaluating the viability of a franchisee relationship. When a franchisee is unprepared to run the business correctly, franchisors in North Carolina may take hits to their bottom line and sustain damage to their brand’s value because of either extending themselves to help the franchisee or having to buy back the location.
Franchisors and franchisees are bound in a relationship under the law and either party has the ability to demand that a court enforce the terms of the franchise agreement.
While creating clear and thorough legal documentation from the outset of the relationship, a franchisor can limit its liability in a lawsuit. This is only possible if the document clearly defines the obligations of each party in the relationship, and provides for remedies in case of a breach.
However, a common challenge in franchising a business in North Carolina may arise even before the creation of a franchisor/franchisee relationship. Federal law requires all potential franchisors to draft and publish a franchise disclosure document (FDD). If that franchisor does not have a trademark that is registered with the US Patent & Trademark Office then it must also file an application with North Carolina to sell franchises in the state. Drafting these documents can be difficult, and there is a lot at stake if they are not done properly, but an experienced franchise business attorney could help ensure that an FDD is complete and correct.
Offering a franchise opportunity can be a major step in the growth of a business allowing franchisors to leverage their successful business model into a less hands-on revenue stream. However, there are many common challenges in franchising a business in North Carolina.
There are several business concerns and legal issues that must be addressed from the beginning of the franchising process, or they may grow and cripple the business. Working with a North Carolina franchise attorney could help to form appropriate responses to these challenges and potentially avoid them altogether. Contact an attorney today to learn more about how to take your business to the next level.
By: Joseph S.
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