When deciding how to structure your business, one crucial consideration is asset protection. A common belief is that corporations offer better asset protection than Limited Liability Companies (LLCs). However, this belief is a myth. LLCs can provide equally robust asset protection, often with greater flexibility and fewer formalities.

The Rise of the LLC

LLCs have gained widespread popularity in the United States, including in Iowa, due to their unique blend of liability protection, tax benefits, and operational flexibility. All states, including Iowa, have enacted laws that make LLCs a reliable option for business owners seeking asset protection.

Why the Myth Exists

The myth that corporations offer superior asset protection likely stems from the fact corporations have been around for so much longer. But even though that’s the case, both corporations and LLCs offer limited liability protection, meaning that the personal assets of the owners (shareholders in a corporation, members in an LLC) are generally shielded from business debts and legal claims. This protection is inherent in the structure of both entities.

Uniform Application of LLC Laws

In Iowa and across the United States, LLC laws have been standardized to provide uniform protection and governance. The Revised Uniform Limited Liability Company Act has been adopted by many states to ensure LLCs offer consistent legal protection and operational guidelines, reinforcing the credibility and reliability of LLCs as a business structure.

Importance of Corporate Formalities

Regardless of whether you choose a corporation or an LLC, adhering to corporate formalities is essential for maintaining asset protection. Failing to follow these formalities can result in the loss of limited liability protection, exposing personal assets to business liabilities.

Here are key practices to follow for both corporations and LLCs:

  1. Keep Documents in Order: Ensure that all formation documents, operating agreements, bylaws, and minutes of meetings are properly documented and maintained.
  2. Separate Personal and Business Finances: Use separate bank accounts for personal and business transactions. Commingling funds can lead to a court piercing the corporate veil, exposing personal assets to business liabilities.
  3. Make Necessary Filings with the State: Stay compliant with state requirements by filing annual reports and other necessary documents on time.

Conclusion

The belief that corporations offer better asset protection than LLCs is unfounded. LLCs provide effective protection when structured and managed correctly. The key to maintaining asset protection lies in adhering to the required formalities and keeping your business operations and finances well-documented and separate from personal matters. By doing so, you can ensure that your chosen business structure, whether a corporation or an LLC, offers the protection you need to safeguard your assets.

This is a question I get all the time. When managing multiple rental properties, one of the primary questions investors face is whether to establish a separate Limited Liability Company (LLC) for each property. While an LLC offers several advantages, the decision to create one for each property involves various considerations, such as the amount of equity in each property, the locations of the properties, associated costs, and whether the properties are in the same state. Here’s a closer look at each of these factors:

1. Equity in the Property

High Equity: If a property has significant equity, forming a separate LLC can safeguard that high equity property from other properties to reduce potential risk. Should a lawsuit arise with another property, having the property in a separate LLC can protect your the equity from being at risk.

Low Equity: For properties with low equity, the perceived need for having a separate LLC might be less. However, even with low equity, the property can still be subject to legal claims so grouping those low equity properties in a LLC is still preferable to holding the rental property in your personal name.

2. Property Location

Different Locations: When properties are in different states, forming separate LLCs might be prudent. This approach can help navigate varying state laws regarding real estate and liability. Each state has its own regulations and protections, and an LLC in one state may not offer the same benefits or recognition in another.

Same Location: If all properties are in the same state, a single LLC might suffice. However, this could increase liability, as legal issues with one property could potentially affect all properties under the same LLC.

3. Costs

Formation Costs: Establishing an LLC involves initial formation fees, which vary by state. For investors with multiple properties, creating separate LLCs for each property means multiple sets of fees.

Maintenance Costs: Beyond formation, maintaining an LLC includes annual fees, registered agent fees, and potential legal, accounting and insurance costs. These can add up quickly if multiple LLCs are involved.

4. State-Specific Considerations

State Laws: Each state may have different laws regarding LLCs and real estate. Understanding state-specific regulations is crucial. Always consult a business/real estate lawyer licensed to practice in that state.

Tax Implications: The tax implications of LLCs can vary by state. Some states impose higher taxes or fees on LLCs, which could influence the decision to form separate LLCs for each property.

Advantages of Separate LLCs

  1. Liability Protection: Each property is isolated from the others, reducing the risk of losing multiple properties in a single lawsuit.
  2. Simplified Accounting: Separate LLCs can simplify accounting and financial tracking, making it easier to manage income and expenses for each property.
  3. Clear Ownership Structure: For investors with partners, separate LLCs can provide a clear ownership structure for each property.

Disadvantages of Separate LLCs

  1. Increased Costs: Formation and maintenance costs multiply with each additional LLC.
  2. Administrative Burden: Managing multiple LLCs requires more administrative work, including separate bookkeeping, tax filings, and legal compliance.
  3. Complexity in Financing: Obtaining financing might be more complex, as lenders must deal with multiple LLCs which requires more paperwork, applications and loan approvals.

Conclusion

The decision to create a separate LLC for each rental property depends on your specific circumstances, including the equity in your properties, their locations, the associated costs, and the legal and tax implications in your state. Consulting with a business/real estate attorney and tax advisor can provide personalized advice based on your situation. Balancing liability protection with cost and administrative considerations is key to making an informed decision.

Ultimately, the right choice varies for each investor, and careful consideration of these factors will help you determine the best strategy for managing and protecting your rental property investments.

In the world of franchising, the franchise agreement is the cornerstone of the relationship between the franchisor and the franchisee. This legal document outlines the rights, responsibilities, and expectations of both parties. While many potential franchisees feel they must accept the agreement as presented (particulary since many franchisors claim it cannot be negotiated), one franchise client demonstrated the power of negotiation—and the willingness to walk away—resulting in several crucial concessions that set them up for success.

The Initial Approach

Our client, a savvy entrepreneur with a keen eye for opportunities, was interested in a franchise. The brand has a decent reputation, and initial discussions with the franchisor were promising. However, upon reviewing the FDD and franchise agreement, we identified several terms that could potentially impact their business adversely. Instead of immediately signing on the dotted line, they decided to take a strategic approach to negotiation.

Identifying Key Issues

The first step was to identify the non-negotiable elements versus the negotiable aspects of the agreement. The client focused on:

  1. Initial Franchise Fee: The upfront cost was steep, and our client believed there was room for adjustment.
  2. Royalty Fees: The royalty fees seemed higher than the average in the industry, but a real issue was a mandatory minimum sales/royalties amount after one year.
  3. Territorial Rights: The agreement provided only limited protection against encroachment by other franchisees, which could affect market share.
  4. Renewal Terms: The conditions for renewing the franchise agreement were vague and potentially unfavorable.
  5. Marketing Fees: The percentage of revenue allocated to a brand fund was high, and there was an extremely unfavorable provision for additional marketing costs in the event mandatory sales minimums were not met

The Power of Preparation

Preparation was key to the client’s negotiation strategy. We conducted thorough research, gathering information on industry standards, comparable franchise agreements, and the specific franchisor’s performance metrics. Armed with this information, the client was able to make a compelling case for each concession.

The Negotiation Process

Negotiations began with an open and honest discussion about the client’s concerns. They approached the franchisor with respect but also with clear demands. The client’s willingness to walk away from the deal if necessary played a crucial role. This stance demonstrated to the franchisor that they were dealing with a serious and knowledgeable potential franchisee partner.

  1. Initial Franchise Fee Reduction: The client presented data showing average franchise fees within the industry. After several rounds of discussion, the franchisor agreed to reduce the initial fee, making the investment more manageable.
  2. Royalty Fee Reduction: The client achieved a royalty fee reduction for a period of a couple years, but most importantly the mandatory minimum royalty/sales amount was eliminated for the duration of the franchise agreement.
  3. Enhanced Territorial Rights: The client argued that stronger territorial protection would benefit both parties by ensuring market stability. The franchisor agreed to amend the agreement, granting the client exclusive rights within a larger radius, thus preventing encroachment by new franchisees. We believe this is extremely important in our metro area where everyone is “fifteen minutes away!”
  4. Clearer Renewal Terms: The client insisted on more transparent and favorable renewal conditions. The franchisor provided a detailed outline of the renewal process, including clear criteria for performance.
  5. Marketing Fee Revisions: The franchisor eliminated the brand fund requirement for a period of time.

The Outcome

The willingness to negotiate and the readiness to walk away if necessary were pivotal in securing these concessions. The final agreement was not only more favorable to the client but also set a precedent for a more collaborative relationship with the franchisor. This empowers the client to operate their franchise with confidence, knowing they have a much better agreement that supports their business goals.

Lessons Learned

For prospective franchisees, this case underscores the importance of:

  1. Thoroughly Reviewing the Franchise Agreement: Understand every clause and its potential impact on your business.
  2. Conducting Comprehensive Research: Know the industry standards and how other franchises operate.
  3. Being Prepared to Negotiate: Approach the franchisor with respect but be clear about your needs and expectations.
  4. Demonstrating Willingness to Walk Away: This is a powerful leverage tool in negotiations.

Negotiating a franchise agreement can be difficult, but with the right approach, it is possible to secure terms that provide a solid foundation for your franchise business. This client’s success story is a testament to the power of strategic negotiation and the courage to advocate for oneself in the franchise world.

In the realm of business agreements, noncompete clauses have long been a subject of scrutiny and debate. These contractual provisions restrict individuals from working for or starting a competing business within a specified time frame and geographical area after leaving their current employment. While the Federal Trade Commission (FTC) has taken steps to limit the application of noncompetes with its recent ban, one area where they still hold sway is in the franchise industry.

Franchise Noncompetes: An Exception to the Rule

Despite the FTC’s efforts to limit the scope of noncompete agreements, one area where these clauses remain prevalent is within franchise agreements. Franchisors often include noncompete provisions in their contracts with franchisees to protect their brand, goodwill, and proprietary business methods.

Unlike in the realm of traditional employment contracts, where the FTC’s noncompete ban holds sway, franchise noncompetes are not included in these restrictions. This exemption is based on the rationale that franchise agreements involve a different set of considerations than typical employment relationships. Franchisees invest substantial resources into establishing and operating their businesses under the franchisor’s brand, and noncompete clauses serve to protect the franchisor’s investment in the franchise system as a whole.

Navigating Franchise Noncompetes: Considerations for Franchisees

For aspiring entrepreneurs considering entering into a franchise agreement, understanding the implications of the included noncompete clause is crucial. Here are some key considerations:

  1. Scope and Duration: Pay close attention to the scope and duration of the noncompete clause. Ensure that the restrictions imposed are reasonable and necessary to protect the legitimate interests of the franchisor.
  2. Geographical Limitations: The noncompete clause should specify the geographic area within which the franchisee is prohibited from competing. Ensure that these limitations are tailored to the specific market served by the franchise and do not unduly restrict future business opportunities.
  3. Legal Review: Before signing any franchise agreement, it’s advisable to seek legal counsel to review the terms and conditions, including the noncompete clause. A qualified attorney can help assess the enforceability of the provision and negotiate any necessary modifications.
  4. Alternative Options: In rare cases, franchisees may be able to negotiate the removal or modification of the noncompete clause altogether. Alternatively, they may explore franchise opportunities with less restrictive noncompete provisions or consider independent business ventures that offer greater flexibility.

Conclusion

While the FTC’s ban on noncompete clauses in employment contracts represents a significant step towards promoting competition and worker mobility, it’s important to recognize that franchise agreements operate within a different legal framework. Franchise noncompetes remain a common feature of these contracts, designed to protect the interests of both franchisors and franchisees. Aspiring franchisees should carefully review and consider the implications of these clauses before committing to a franchise opportunity, seeking legal guidance as needed to ensure a clear understanding of their rights and obligations.

In a landmark move, the Federal Trade Commission (FTC) narrowly approved a ban on noncompete clauses, sparking significant debate and raising questions about the future of employment contracts. As a business lawyer, I’ve been closely following this development and believe it’s crucial to examine both the opportunities and challenges it presents for businesses.

Key provisions under the ban to consider for existing noncompetes:

  1. Noncompetes may remain in effect after the effective date for senior executives (defined as a worker who was in a policy-making position and has annualized compensation exceeding $151,164.
  2. Noncompetes will be unenforceable for all other workers after the effective date.

Key provisions under the ban to consider for new noncompetes:

  1. Banned for all workers, including senior executives).
  2. There is a business sale exception to the noncompete ban.

Noncompete agreements have long been a contentious issue in the realm of employment and business law. On one hand, they provide employers with a means to protect their intellectual property, trade secrets, and client relationships. They can also incentivize employers to invest in employee training and development, knowing that their investment will be protected if the employee decides to leave.

However, critics argue that noncompetes can stifle innovation, hinder employee mobility, and limit job opportunities for workers. The FTC’s decision to ban noncompete clauses represents a significant shift in favor of employees’ rights and could have far-reaching implications for businesses across various industries.

From a business lawyer’s perspective, the ban on noncompetes presents both challenges and opportunities for our clients. It may force businesses to rethink their strategies for protecting their proprietary and confidential information and retaining top talent. Without the ability to rely on noncompete agreements, businesses will need to explore alternative methods of safeguarding their competitive edge.

One such alternative is the use of nondisclosure agreements (NDAs) and confidentiality agreements. While these agreements may not prevent employees from working for competitors, they can still offer some level of protection for sensitive information and trade secrets. Additionally, businesses may need to strengthen their internal security measures and implement stricter access controls to prevent unauthorized disclosure of confidential information.

Another option for businesses is to focus on creating a positive work environment and offering competitive compensation and benefits packages to retain employees. By fostering a culture of loyalty and engagement, businesses can reduce the likelihood of employees seeking opportunities elsewhere.

The ban on noncompetes also presents an opportunity for businesses to attract top talent by offering more favorable employment terms. In a competitive job market, companies that are willing to forgo noncompete agreements may have a competitive advantage in attracting skilled professionals who value their freedom and mobility.

Furthermore, the ban on noncompetes could lead to greater innovation and entrepreneurship as employees feel more empowered to pursue new opportunities and start their own ventures. This could ultimately benefit the economy as a whole by fostering a more dynamic and competitive business environment. Smart business owners might even help invest in promising new products or services proposed by employees.

However, it’s essential for businesses to proceed with caution in the wake of the FTC’s decision. While noncompete agreements may no longer be enforceable, businesses still need to protect their intellectual property and trade secrets. Failure to do so could leave them vulnerable to exploitation and undermine their competitive position in the market.

It is important to remember that the ban is likely to face legal challenges, so nothing at this point is set in stone. But the momentum is plain as day as noncompetes will undoubtedly continue go to the wayside regardless of how those legal challenges turn out.

Also, as mentioned above there is a business sale exception to the noncompete ban. We will continue to advise business buyers to seek noncompetes in a business sale situation, and sellers should fully expect that such noncompetes will be enforced.

In conclusion, the FTC’s ban on noncompetes represents a significant development in employment and business law that will undoubtedly shape the landscape for businesses in the years to come. While it presents challenges in terms of protecting proprietary information and retaining top talent, it also offers opportunities for businesses to adapt and thrive in a changing environment. As business lawyer, I am here to help clients navigate these changes and develop strategies that prioritize both their interests and the rights of their employees.

A young entrepreneur recently came to see me for some very basic, but extremely important advice. He had read many articles and watched videos on the Internet about maintaining corporate protections. He had realized pretty quickly that running a successful business requires careful planning and organization, especially when it comes to managing finances. One critical aspect that entrepreneurs often overlook is the separation of personal and business finances. Mixing personal and business funds can lead to a myriad of problems, including legal issues and financial instability. In this post, we will explore the significance of keeping personal and business finances separate to maintain corporate protection.

  1. Legal Protection:

One of the primary reasons for separating personal and business finances is legal protection. When you commingle funds, you risk losing the limited liability protection provided by certain business structures, such as LLCs and corporations. If legal issues arise and your finances are not clearly separated, a court may disregard or “pierce” the corporate veil, making personal assets vulnerable to business-related liabilities.

  1. Enhanced Financial Accountability:

Maintaining separate financial accounts for personal and business use ensures clear visibility into the financial health of your business. This separation makes it easier to track business expenses, revenues, and profits accurately. It also facilitates the preparation of financial statements, tax returns, and other financial documentation required for regulatory compliance. And if you ever want to sell your business, it provides an accurate financial picture for the buyer.

  1. Improved Financial Management:

Separating personal and business finances helps in better financial management. Business expenses should be paid from the business account, and personal expenses from personal accounts. This practice simplifies budgeting, expense tracking, and tax preparation. It also reduces the risk of overlooking deductible business expenses, which can have a positive impact on your tax liability.

  1. Professional Image:

Maintaining a clear distinction between personal and business finances contributes to a more professional image. It instills confidence in bankers, investors, and partners, showcasing that your business operates with transparency and integrity. A professional financial structure can strengthen your relationships with stakeholders and attract potential investors.

  1. Easier Tax Compliance:

Separating personal and business finances makes tax compliance less complicated. Deducting business expenses and claiming tax credits become straightforward when transactions are clearly identified and documented. This practice also reduces the likelihood of triggering an audit by tax authorities, as your financial records will be accurate and easily verifiable.

  1. Financial Stability:

Mixing personal and business finances can jeopardize the financial stability of both your personal life and your business. Personal financial emergencies should not impact the operational continuity of your business, and vice versa. Keeping these finances separate ensures that each entity can thrive independently, minimizing the risk of financial ruin if one aspect faces unexpected challenges.

In summary, the importance of separating personal and business finances cannot be overstated. It is not merely a matter of organizational preference but a crucial step for protecting your business legally, maintaining financial transparency, and promoting overall stability. By establishing clear boundaries between personal and business finances, entrepreneurs can build a solid foundation for their enterprises and mitigate potential risks. Ultimately, the discipline of maintaining this separation contributes to the long-term success and sustainability of your business and helps protect your personal assets from liability.

The Corporate Transparency Act (CTA) is part of sweeping Congressional changes to anti-money laundering laws. Starting January 1, 2024, the CTA will require most small businesses and corporate entities to file a Beneficial Ownership Information Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

Initial reports for existing businesses (those created prior to January 1, 2024) must be filed with FinCEN by January 1, 2025. Those companies created on or after January 1, 2024, and before January 1, 2025, must file their initial reports within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier. If your company is created on or after January 1, 2025, the filing time shortens to 30 calendar days instead of 90. In addition to general information about the business, the initial Beneficial Ownership Information Report must contain identifying information about all beneficial owners of the business. Specifically, any person who either owns more than 25% of the business or any person who has substantial control over the business must provide: 1) full legal name, 2) date of birth, 3) current residential address, and 4) a personal identification document like a passport or driver’s license.

In addition to the initial report, businesses must also file an updated report within thirty days of any change in any of the information listed above. If an error in the report is discovered, businesses must file a corrective report within fifteen days of discovering the error.

Information sent to FinCEN will be kept confidential within an electronic database, and business information will not be available to the public. The database will only be accessible by FinCEN and other various law enforcement agencies.

Non-compliance can result in severe penalties, including fines up to $10,000 and jail time. To learn more about this new requirement, please visit www.fincen.gov. Data entry and forms will be available from the FinCEN starting January 1, 2024. If you would like to learn more about these important requirements, please be sure to contact your business lawyer.

Starting a business can be a daunting task, but franchising has become a popular choice for entrepreneurs who want the benefits of owning their own business with a proven model, as well as support from the franchisor. However, not all franchisors provide the support franchisees need to operate a successful business. In this blog post, we will discuss the reasons why franchisors fall short in providing support to franchisees.

Lack of Communication: One of the most significant reasons why franchisors fall short in providing support to franchisees is due to a lack of communication. Franchisors may focus on bringing new franchisees on board, but do not have an effective communication strategy to support existing franchisees. This can cause franchisees to feel unsupported, frustrated, and disengaged.

Limited Resources: Some franchisors may lack the necessary resources to provide adequate support to their franchisees. This can include insufficient staff, limited time, or an overall lack of funding. Without the proper resources, franchisors may struggle to provide the necessary support needed to keep franchisees successful.

Resistance to Change: Some franchisors may be resistant to change and may not adopt new technologies or strategies that can benefit their franchisees. This can harm franchisees’ progress and create delays in their businesses’ growth.

Failure to Listen: Franchisors who fail to listen to their franchisees’ feedback, needs, and concerns fall short in providing support. Franchisees are often experienced business owners with valuable insights to share. However, if the franchisor does not prioritize listening and acting on that feedback, the franchisees may be stuck in a system that doesn’t work for them.

Lack of Training: Finally, franchisors’ failure to provide proper training is a significant issue. Without the proper guidance and knowledge, franchisees can struggle to operate their businesses effectively. This can lead to a high failure rate, which ultimately reflects poorly on the franchisor.

In conclusion, franchisors may fall short in providing support to their franchisees due to many reasons. Franchisees should carefully evaluate a franchisor’s approach to support before signing any agreements. For franchisors, investing in the necessary resources, adopting new strategies, and listening to their franchisees can lead to greater success for everyone involved. Ultimately, by creating a culture of support, franchisors can help their franchisees build profitable and successful businesses.

Buying an existing business is often a great opportunity for would-be business owners. It is a way to skip the early stages of business development and hit the ground running. However, before making any serious decisions, it is important to understand the legal implications involved in buying an existing business. There are many legal issues that can arise, such as ownership disputes, tax liabilities, and contract disputes. In this blog post, we’ll discuss nine tips for buying an existing business from a legal perspective, so you can approach the process with confidence.

  1. Conduct an extensive due diligence process: Before purchasing an existing business, it is essential to conduct an extensive due diligence process. This includes reviewing all existing contracts, financial statements, tax returns, and employee agreements. You also need to ensure that the business is compliant with all applicable laws and regulations. If you are not familiar with due diligence, it’s a process of examining a business or person before committing to a deal.
  2. Know your seller: Make sure you research and understand who you are buying from. Understand their reputation in the market, and identify any prior legal issues. It is essential to check their credibility in the business world because it can help mitigate future legal risks.
  3. Identify legal liabilities: Identify all the legal liabilities of the company you intend to buy. Legal liabilities can include past lawsuits, outstanding debts, and pending legal claims. Knowing and disclosing these liabilities in advance can help you prepare for their impacts and avoid costly litigation.
  4. Hire a team of legal and financial experts: It’s often recommended to hire an experienced team of consisting of a lawyer and an accountant to navigate the process of buying an existing business, as they can identify and address legal pitfalls that you may miss. These experts can help you manage risks and ensure that you are making an informed decision.
  5. Carefully review all contracts: Be clear about the legal validity of agreements between the seller and its clients, vendors, and suppliers. Be sure to examine any ambiguities or unclear language. This will help you avoid any legal hurdles that may arise after the transaction.
  6. Verify all assets: Conduct an in-depth review of all assets, including intellectual property like patents, copyrights, and trademarks. Ensure they are transferrable to you during purchase. Legally owned assets related to the existing business can help you grow your business quickly and affordably.
  7. Create a sound legal agreement: A strong purchase agreement should include all the critical details, such as payment structure, and contingencies should you find liabilities or other issues that were not disclosed during the due diligence phase. Having a well-written purchase agreement will help avoid future legal problems.
  8. Obtain any necessary permits and licenses: Check if there are any licenses or permits required to run the business and obtain them before the purchase. Some businesses like bars, restaurants, or professional services might need particular licenses to operate under the law. Ensure you understand the legal requirements before you finalize the purchase.
  9. Don’t rush (perhaps a pun intended): Take your time before making a purchase decision. Verify everything and go through the specific terms of the deal, and confirm that you have received everything you need to move forward with the acquisition.

Purchasing an existing business can be rewarding, but it is crucial to take your time and conduct a thorough due diligence process to identify any hidden legal risks. Seeking the help of a lawyer and an accountant, knowing the seller’s background, comprehensively reviewing contracts and identifying legal liabilities, and creating a comprehensive legal purchase agreement are important steps you need to take before making the purchase. These tips will help assure that your new venture sets off on the right legal footing.

Franchise agreements are the heartbeat of the franchise industry. They dictate the relationship between the franchisor and franchisee, outlining everything from branding and marketing guidelines to operational procedures and fees. Let’s be honest. These franchise agreements are VERY one-sided. No one denies it. So, it is not a surprise that many prospective franchisees ask, “Are franchise agreements really negotiable?” The answer is yes – in theory. But in reality, many franchisors won’t negotiate the franchise agreement, and today, we’ll explore why.

Consistency is Key

One of the cornerstones of the franchise industry is consistency. As a franchisor, your brand is your business, and every franchisee should operate with the same level of quality and professionalism that your customers have come to expect. That’s why most franchise agreements are designed to be as uniform as possible, covering everything from equipment, products, services to hiring practices. If you start opening up negotiations with individual franchisees, you risk diluting your brand’s consistency and reducing the value of your franchise system. In short, allowing franchise agreements to be highly negotiable could harm the overall franchise system, dissuading prospective franchisees from investing in your brand.

Franchisor’s Legal Obligations

Another reason franchisors often avoid negotiating the franchise agreement is due to the legal obligations they must fulfill. Franchisees must be provided with a franchise disclosure document that details all relevant information about the franchisor and the franchise system. Any important terms or amendments must also be included in the agreement. Allowing negotiations will only make the process more complex and costly, not to mention increase the risk of improper disclosure. This is why the vast majority of franchisors stick to standardized agreements to save time and minimize risk. But be clear, it is NOT illegal for a franchisor to negotiate a franchise agreement. Instead, they are CHOOSING not to negotiate.

Risk of Losing Control

In addition to the reasons above, many franchisors don’t negotiate the franchise agreement because they want to maintain control over their brand. If too many franchisees are allowed to change the agreement, franchisors are no longer in control of their system, which can lead to a host of problems like inconsistency in operations, disputes over royalties and fees, and even legal trouble. By having a fixed franchise agreement, franchisors are more easily able to manage their system and keep the brand intact.

Non-Negotiable Provisions vs Negotiable Provisions

Another thing to keep in mind though is that not all franchisees are the same. While most franchisors won’t negotiate the franchise agreement as a whole, there are many provisions that can be customized to fit the needs of individual franchisees. For example, the size and scope of territories are often negotiated. And especially in multi-unit franchise purchases, you may be able to get discounts on the franchisee fees, royalty fees or perhaps the time frames to achieve certain standards. Marketing strategies and requirements could also vary depending on the franchisee. In this sense, some franchisors understand that in order to make a deal it is important to treat the franchise agreement not so much a rigid contract, but as a tool that can be adjusted and customized to meet the needs of the franchisees while still holding true to the franchisor’s underlying philosophy.

So, are franchise agreements really negotiable? While they are legally negotiable, many franchisors opt to maintain consistency, legal compliance, and control over their brands by sticking to standardized agreements. However, unique deals are still possible, and there are provisions that may be negotiable depending upon the circumstances. Ultimately, the best thing to do when considering a franchise agreement is to thoroughly examine the provisions and negotiate where you can while keeping in mind the overall structure and philosophy of the brand.