Mr. Chapman represents persons who desire to acquire franchises or purchase franchised businesses. He has lectured on “buying a business” for programs presented by the Institute for Continuing Legal Education Lawyers Educational Services, Kean University/Small Business Administration and SCORE (Service Corps. of Retired Executive).

Some important considerations in forming a new business to acquire not only a franchise but an existing business are:

• selecting the form of business organization-limiting liability
• selecting a lawyer competent, not only in franchising, but also in corporate, commercial and real estate law
• identifying the respective due diligence activities for the proposed franchisee and the lawyer
• selecting an accountant to assist in the reparation of cash flow projections, preferably prior to signing the Franchise Agreement
• deciding on whether to have compilation or review financial statements
• use of payroll services-dangers of non-compliance with technical requirements
• shopping around for insurance coverage, rather than blindly using the insurance agent recommended by the Franchisor

Franchise Agreements

Some major issues in reviewing the Offering Circular and Franchise Agreement are:

• refund of Franchises Fee or portion thereof before commencement of operations under certain circumstances
• the “Territory” and scope of protection for the Franchisee
• length of initial term
• right of renewal and conditions thereon
• conditions to right of Franchisee to sell the business with the Franchise or to sell a portion of the ownership
• effect of death or disability of the principal of the Franchisee
• limitation of the liability of the principals(s) on the personal guaranty required by the Franchisor
• limits, if any, on discretion of Franchisor to refuse to grant consents or approvals
• restrictions on competitive activities of the Franchisee of its Principal(s) after termination

Some of the key issues in the Lease for the franchised location are:

• the precise language of the use clause
• length of initial term and synchronization with the initial term of the Franchise
• Tenant’s option to renew security deposit; amount and form
• possible limit to the amount of the personal guaranty
• right of Tenant to assign the lease if it sells its business
• limits, if any, on discretion of Landlord to refuse to grant consents or approvals
• Tenant’s signs  subordination of Landlord’s right of distraint to lien of a bank providing financing for the business