What Is Franchise Litigation?

A franchise is an easy way for a person or business to expand through a licensing relationship. A franchisor is the person or company that grants the license to a third party, commonly called franchisees. The licensing relationship is traditionally outlined in disclosure documents, which outline several things including all operating systems, branding requirements, a history of material lawsuits and litigation, as well as all the contractual obligations that must be met in order to sustain the franchise. What is franchise litigation? Usually franchise litigation occurs when the licensing relationship goes awry.

What is Franchise Litigation?

Most often, franchise litigation is enacted by the franchisor, not the franchise. This is because most franchisors carefully draft disclosure agreements with an attorney to ensure all aspects of the business are outlined clearly and in a way that protects the franchisor and his or her business.

Franchisees are often not as dedicated to reading and understanding the disclosure agreements, and therefore not always aware of their obligations to the franchisor in full.

For example, if a franchisee defaults on payments or fees to the franchisor, they are violating their licensing agreement, and therefore liable to franchise litigation.

How to Avoid Franchise Litigation

The best way to avoid franchise litigation is to read carefully and thoroughly all disclosure agreements. This may require assistance from a lawyer or contract attorney.

Moreover, when you start a business, franchise or other, it’s always a good idea to have legal support or services to ensure all aspects of the business meet all legal and contract requirements.

Whether you need to file an application for EIN, or require help choosing the right business entity for specific tax advantages, finding support early is a great way to avoid most legal conflicts regarding your business in the future.

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