Common Legal Mistakes New Franchisees Make

Starting a franchise can be a smart way to enter the business world. You get the benefit of a proven brand, training, and ongoing support. However, many new franchisees make legal mistakes that hurt their business in the long run. These mistakes can be costly and, in some cases, force them to shut down.

That’s why it’s important to get legal help early on. Before you sign any franchise agreement or make a financial commitment, be sure to protect your business interests with expert franchise legal services. Having legal guidance from the start helps you avoid mistakes and keep your business safe.

Legal Mistakes New Franchisees Make

Franchising can be exciting, but it’s also filled with legal responsibilities. Many new franchisees dive in without fully understanding what’s at stake. According to the US Bureau of Labor Statistics, around 20% of franchise businesses fail within the first year, many due to legal oversights and lack of preparation.

Below are six common legal mistakes they often make:

Insufficient Research and Due Diligence

Many new franchisees skip the deep research needed before signing a franchise agreement. They may not fully read the Franchise Disclosure Document (FDD), which includes important information about the franchisor’s background, fees, legal history, and earnings.

Not checking the franchisor’s track record or talking to current franchisees can also lead to poor decisions. This lack of due diligence can result in buying into a brand with legal or financial issues.

Failing to Consult with a Franchise Attorney

Franchise agreements are full of legal terms and fine print. Yet, many franchisees sign them without talking to a legal expert. This is a risky move. A franchise attorney can explain your rights and duties under the agreement. They can point out any unfair terms, hidden costs, or red flags. Without this help, you could end up stuck in a contract that limits your control and increases your risk.

Overestimating the Role of the Franchisor

Some franchisees expect the franchisor to handle everything, from marketing to daily operations. But that’s rarely the case.

Most franchisors offer support and training, but the franchisee still runs the business. Misunderstanding this role can lead to disputes, poor performance, or legal trouble when the franchisee fails to meet standards or expectations.

Not Protecting Intellectual Property Rights

Franchisees use the brand name, logo, and products of the franchisor. But they must also follow strict rules on how to use these intellectual property (IP) assets.

Misuse or poor protection of these assets can lead to lawsuits from either the franchisor or third parties. Make sure you understand how to use the brand correctly, and don’t forget to protect your own business name and ideas, if applicable.

Poor Location Selection

Choosing the wrong location can break a franchise. In many cases, franchisees don’t consider zoning laws, lease terms, or target market conditions. Worse, some don’t realize that their franchise agreement limits where they can set up shop. Legal issues can also arise if two franchisees of the same brand are placed too close together, leading to conflict and lost revenue.

Ignoring Local and State Regulations

Each state and city may have its own rules on health, safety, labor, and business licensing. New franchisees sometimes assume that the franchisor has handled all the legal paperwork, but that’s not always true.

Failing to meet local or state regulations can lead to fines, shutdowns, or lawsuits. It’s your job to make sure your business complies with all relevant laws before and after opening.

Conclusion

Franchising can lead to business success, but only if done right. Many new franchisees make legal mistakes because they rush in without enough research or advice. By doing your homework, understanding your role, and getting professional legal help, you can avoid these traps and set your business up for long-term success.

Don’t take risks. Protect your business interests with expert franchise legal services from the start. It’s one of the smartest moves you can make as a new franchise owner.