Three Deal-Breakers In Franchise Agreements

Three Deal-Breakers In Franchise Agreements

| WSI Genesis | ,
WSI Genesis

A franchise may be the perfect way for budding entrepreneurs with little capital and/or little experience in operating a business to get started with their own business. When you choose to operate a franchise, a larger parent company agrees to permit you to sell their product or service – and oftentimes agrees to assist you in establishing and operating the business – in return for a certain amount of your business’s profits. Many fast food chains and local offices of national service providers (such as pest control businesses) are franchises.

Beware Of Deal-Breakers In Franchise Agreements

Despite the benefits that franchises may offer, they are not for everyone. Before you sign a franchise agreement, take a careful look at the agreement itself (preferably with the help of a knowledgeable and experienced California franchise attorney). Be wary if the agreement contains any of the following “deal-breakers”:

  • Not enough start-up support: Even with a well-known brand, starting a new business of any type can be difficult. Be certain that the franchisor agrees to provide you with enough support during your first few years so that you have the best opportunity for succeeding in your venture. A franchisor that is not willing to invest in your success (i.e., by providing you with training or access to a convenient source for necessary start-up equipment) may not be the best business partner. 
  • Liquidated damages clauses: A liquidated damages clause in the franchise agreement benefits the franchisor at the expense of the franchisee. In the event the franchisee breaches the franchise agreement (in the event the franchisee cannot turn a sufficient profit, for example), this provision specifies that the franchisor will receive a certain amount of money as damages. If you have no resources, however, meeting this obligation can be extremely difficult. Instead, inquire about a “buyback” provision whereby the franchisor retains the right to repurchase or repossess the franchise in the event of a breach.
  • Mandatory arbitration clausesForced arbitration in any sort of contract usually benefits one party at the expense of another. In agreeing to submit any claim or dispute to arbitration, you as a franchisee may be giving up important legal protections that you would otherwise have in a courtroom setting. One of the chief disadvantages is that the franchisor is often able to select the arbitrator, who then (generally) is predisposed toward the franchisor. While arbitration may be a useful means of resolving a dispute you may have with your franchisor, being forced to resolve all disputes in this matter without any additional methods for seeking redress of your grievances can be disastrous for you and your franchise business.

Contact Your California Franchise Attorney Today 

JGPC Law is your franchise agreement law firm in California, able to assist you from start-up to winding down your Walnut Creek, Danville, or Pleasanton franchise. We would be happy to review your franchise agreement before you sign to ensure the agreement is in your best interests and does not contain any “deal-breakers.” Contact us to discuss your legal needs by calling (925) 463-9600 or by contacting our firm online.
Originally posted at:

About the Author

Kevin Dean, President of WSI Net Advantage...


The Best Digital Marketing Insight and Advice

The WSI Digital Marketing Blog is your go-to-place to get tips, tricks and best practices on all things digital marketing related. Check out our latest posts.

We are committed to protecting your privacy. For more info, please review our Privacy and Cookie Policies. You may unsubscribe at any time.

Don't stop the learning now!

Here are some other blog posts you may be interested in.

The Role of an Arborist for Commercial Landscaping

The Role of an Arborist for Commercial Landscaping Summary: There are many facets to caring for the grounds of your c...

6 Email Marketing Metrics You Should Be Tracking

| , ,
EMAIL MARKETING 6 Email Marketing Metrics You Should Be Tracking MAY 1, 2020 | 2 MINUTES TO READ Kevin Dean President...

Small Business Marketing Tips During the Coronavirus Outbreak

| , ,
Small Business Marketing Tips During the Coronavirus Outbreak Small Business Marketing Tips During the Coronavirus Ou...