A Post from the Field: It’s Time to Update Your SBA Registration!

by Mary Beth on May 17, 2012

Just like Franchise Disclosure Documents (FDD) and state registrations, a franchise’s SBA registration must be updated annually. The update process includes submission of current disclosure documents, agreements and completion of an online questionnaire. The initial SBA registration is $2,500 currently, and the renewal registration is about ¼ of the initial registration cost.

The SBA Registry is a way for franchisors to get their franchise concept ‘pre-eligible’ for SBA funding. Of course, whether a SBA loan is approved will dependent largely on the resource of the prospective franchisee buyer. The SBA Registry, however, is the means of avoiding the inconsistencies and timely process of having regional SBA offices review the franchise concept for each transaction prior to approving an SBA loan.

In determining if a franchise can be on the SBA Registry, the SBA reviews the franchise agreement and other franchise contracts to ensure that sufficient auspicious of an independent business and other measures are contemplated within the franchise model. Such things as excess or undetermined fees; franchisor controls of over pricing, employee management, daily franchised business operations, and bank account or billing; and limitations on franchised business transferability among other things can render the franchise concept ineligible to be on the SBA Registry. Sometimes factors that could render a franchise ineligible to be on the SBA Registry can be altered or modified via an addendum ; thereby, allowing clear entry on the SBA Registry. For more information about SBA addendums, visit our resource library by clicking on this link: http://gettinsnelsonlaw.com/sba-addendums

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Lessons from the Court Room: A Case of Racial Discrimination, or Not?

by Mary Beth on May 10, 2012

Is it possible for a franchisor to be held liable for racial discrimination against a franchisee’s shareholders? In a case out of the 4th Circuit, the Court said NO. The case was Beasley v. Arcapita, Inc. Beasley, an African-American franchisee shareholder, alleged the franchisor committed racial discrimination by not allowing the franchise business to the sell pork. Under the court’s rationale, the franchise shareholders did not sign the franchise agreement personally and therefore the shareholder could not claim discrimination under the franchise agreement.

The court was not persuaded by the fact the shareholder signed a personal guaranty. The signing of a guaranty by the shareholder still did not render the shareholder a party to the franchise agreement. Without being a party to the franchise agreement, the shareholder could not sustain a claim against the franchisor for discrimination.

Racial discrimination cases are not unique in the franchise industry. The 4th Circuit has legal precedent for its decision. The U.S. Supreme Court in 2006 came to the same conclusion in Domino’s Pizza, Inc. v. McDonald. While the courts in both the 2006 and present day case denied franchisor liability, discrimination remains a hot bottom topic and should be held with utmost care. The courts have, with greater frequency, treated corporations and other business entities as individuals under the law.

In addition, looking at the case inversely, franchise agreements are not infrequently entered into by individuals and not business entities. In the case of an individual franchisee, couldn’t a discrimination case clearly be made against the franchisor? Further, some franchisor’s standard franchise agreements call for both the franchise business entity and the individual franchisee shareholder to sign the franchise agreement itself instead of the franchisee shareholders signing a separate personal guaranty. Again, wouldn’t an individual franchise shareholder signing of the franchise agreement itself open the door for franchisor discrimination claims?

Lesson from the court: Corporations are not people and thereby are not always afforded the same protections as individuals.

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Lessons from the Court Room: You Don’t Have to Tell How Much It Made

May 4, 2012

Business locations owned and operated by the franchisor are referred to as company owned locations. When and if the franchisor sells a company owned location, the franchisor has considerable information about the historical earnings of the location. Does the franchisor have an obligation to share the historical earnings information about a company owned location when [...]

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A Post From the Field: Looking for Information about Other Franchise Models?

April 27, 2012

A question that I hear a lot is: what are other franchise models doing? Franchisors looking to restructure their fees want to know what other franchise models are doing. Persons looking to buy a franchise want to know if this is common in the franchise industry or do all franchises require this? Yes, you can [...]

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Lesson From the Court: I did not do my diligence, but you negligently misrepresented the franchise!

April 19, 2012

Federal and state laws prohibit franchisors from making improper financial performance representations when selling franchises. State statutes and common laws prevent franchisors from making misrepresentations when selling franchises. What are improper financial performance representations? What constitutes a misrepresentation? In a case out of Minnesota looking at Florida law (Hockey Enterprises, Inc. Plaintiff, v. Dean Talafous, [...]

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A Post from the Field: Can I sell a franchise post April 30th?

April 13, 2012

Under the Federal Trade Commission’s (FTC) rule, Franchisors must update their franchise disclosure document (FDD) within 120 days from the close of the fiscal year. This update requirement is commonly referred to as the FDD annual update and includes such things as insertion of the previous year’s audit financials, updating of the listing of current [...]

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It is a Logo. It is a Copyright. No, it’s a Trademark.

March 22, 2012

You come up with an idea.  You give it a name.  It is your invention.  You have created a work of art.  You want to protect it from being stolen by others, but what is it?  Is it a patent, copyright, service mark, or trademark?  This is a question I get frequently and understandingly.  It [...]

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Post from the Field: When Should I Call my Franchise Attorney…..

March 8, 2012

Running a franchise system, franchisors run into issues daily that can have legal consequences.  But, when do you call an attorney?  No one wants to be legally micromanaged, but there are situations that can have grave legal consequences.  We picked out the top 6 times when you should call a franchise attorney.  Here they are: [...]

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Lesson from the Court: What do mean, I Cannot Sue You?

March 2, 2012

Franchisors commonly request franchisees to sign a release of claims.  A release of claims is where one or both parties agree not to sue the other.  When signing a franchise agreement, renewing a franchise, transferring a franchising, closing a franchise, or resolving franchise disputes, franchisees are commonly asked to sign a release of claims.    As [...]

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A Post from the Field: Do I Need to Update my FDD?

February 17, 2012

Last month I did a post about prepping for the annual Franchise Disclosure Document (FDD) update. That is great kick-off to talk about when a FDD must be updated. Here are some basic questions and answers about FDD updates. When I need to update the FDD? The FDD must be updated on 2 occasions. An [...]

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