By Nancy L. Lanard, P.C, www.Lanardlaw.com

You are considering acquiring a franchise. You have received the Uniform Franchise Offering Circular (UFOC) and have thumbed through the pages of information. What do you do now?

Franchisors are required to disclose 23 items of information that are intended to assist you in deciding if the investment is one that you should consider. A prospective franchisee should carefully review the UFOC. In reviewing these 23 required items, a great deal of information is uncovered. You will learn about the history of the company, whether there are affiliates or predecessors, how long the company has been in business and how long the company has been selling franchises. Additionally you will learn about litigation brought by and against the company involving the franchise. You will learn the backgrounds of the various principals involved in the company and whether any have been involved in bankruptcy. There is a great deal of financial information included in the 23 items which indicate franchisees' financial obligations to the company and to others and the estimated initial costs involved.

Once you have reviewed the UFOC, you should perform due diligence by contacting existing and former franchisees in the franchise system. Ask many questions about their experiences. In addition to the obvious financial questions, you should inquire about the support they receive from the franchisor, their positive and negative feedback on owning the franchise and whether, if they knew what they now know, they would buy the franchise today.

Your next step should be to show the franchisor's financial statements (contained in the UFOC) to an experienced business accountant. The accountant should advise you on whether he or she believes that the franchisor has sufficient financial strength to support your business and the franchise system for the duration of the franchise term. Additionally, the accountant should advise you on whether he or she believes that this business appears likely to be able to financially support you and your family.

The last step in determining if you should acquire a franchise is to consult an experienced franchise attorney. As such an attorney, my review of the documents begins with a review of the UFOC to gain an understanding of the franchise and the franchisor. I review the 23 items, paying particular attention to the first few items which provide a great deal of information about the company. Additionally, I check the status of the trademark(s) to make sure they are federally registered trademarks. After all, when you are buying a franchised business, you are acquiring a business that operates under a trademark. It is important to be sure that the trademark is federally protected.

My review continues with a thorough review of the franchise agreement. While reviewing the agreement I make note of obligations (financial, reporting and others) that the franchisee will have to the franchisor. Although some agreements are not negotiable, some agreements are. Therefore, I suggest revisions to the agreement which would make the document fairer to the franchisee. Some of the modifications involve providing a standard of reasonableness when franchisor approval is required, providing more notice prior to the franchisor's exercise of its remedies upon default, insuring that any required indemnification by the franchisee to the franchisor is limited, and requiring that the franchisor provide indemnification to the franchisee for any trademark infringement actions or claims. These are just a sampling of some of the modifications that can often be negotiated with the franchisor.

Once the franchise agreement is reviewed and negotiations are completed, the franchise attorney should discuss the type of legal entity under which the franchisee should operate the franchised business. In conjunction with the franchisee's accountant, a decision should be made whether the business should be an S-corporation or a limited liability company.

The last piece in representing a franchisee is reviewing and negotiating the retail shopping center lease. Often franchises are retail businesses. Reviewing the leases for the retail location requires an expertise. As an attorney who dedicates approximately 50% of my practice to franchise law, I handle a great deal of commercial shopping center leases. These documents are highly negotiable, from the business terms, to the legal nuances. I know the many legal issues and types of business terms that the less experienced attorney, general practitioner and the real estate broker won't know to negotiate. In addition, I have found that any review performed by the franchisor is not a substitute for an independent legal review.

It is clear that even when a franchise agreement is not negotiable, it is important to retain experienced franchise counsel to assist you with this process. You are undertaking a large financial obligation and it is important to know that someone is on your team assisting you in being in the best legal position you can be. I will look forward to being your teammate.

THIS ARTICLE IS NOT INTENDED TO PROVIDE LEGAL ADVICE. IF YOU WOULD LIKE TO DISCUSS HOW THIS INFORMATION RELATES TO YOUR SPECIFIC SITUATION, PLEASE CONTACT ME AT nlanard@lanardlaw.com OR 215-525-1165.

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ã 2005 Law Offices of Nancy L. Lanard, P.C. All rights reserved. Contact information: Nancy Lanard , Esquire, 1515 Fulton Drive , Maple Glen , PA 19002-3005 , phone: 215-525-1165; fax: 215-542-0346; e-mail: nlanard@lanardlaw.com; web site: www.lanardlaw.com