Buying a franchise? A good business lawyer can help you get set up right

Sep 10, 2020 | business attorney, Contract, Corporation, Employment, Entrepreneurs, Franchises, Independent contractor, Limiting liability, LLC, Small business, Startups

Buying a franchise? A good business lawyer can help you get set up right

Many corporate “refugees” are thinking of starting their own business, and franchises are a popular way to do that. While there are aspects that are peculiar to the franchise model, many of the steps involved in becoming a franchisee are the same as starting any other business. For this reason, anyone planning to purchase a franchise should engage an experienced business attorney to ensure the new business is set up correctly.

Here are just some of the steps a new franchisee needs to deal with, and that a business attorney can help with:

  • Form a legal entity: in order to protect yourself and your personal assets (such as your home) against personal liability, you should form a corporation or limited liability company to be the franchisee. Many franchisors require this.
  • Tax ID number: every legal entity requires a federal tax ID number from the IRS.
  • Buy-sell (shareholders) agreement: if your franchise business has more than one equity owner, it is critical to have a buy-sell agreement in place to set forth the relationship between the owners, including restrictions on the transfer of equity interests.
  • Business licenses: many cities and counties require certain types of businesses to have a business license, especially if your franchise is preparing and serving food.
  • Employee matters: you will need to pay unemployment insurance taxes and obtain workers compensation insurance if you will have employees. It is also advisable to have an employee handbook to set forth expectations and requirements for employees. Also, it is important not to classify your people as independent contractors if they really meet the legal definition of employees.
  • Real estate: if your business will have a physical location, you will need to either purchase or lease real estate. In either case, you will need legal advice to protect your interests.
  • Insurance: in addition to workers compensation insurance, you will need general liability and other types of insurance. While a business attorney doesn’t sell insurance, he or she can connect you with insurance brokers who are experienced at insuring franchise businesses.

Buying a franchise is very similar to starting any other type of business. An experienced business attorney can help ensure your new franchise gets off to a good “legal” start.  If you have any questions, please contact Mark Spitz at mark@spitzlegalcounsel.com or 720-575-0440.