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Keith Kanouse Articles

Guest post by: Keith Kanouse

FTC New Business Opportunity Rule - Reduced Disclosure But Increased Coverage - Click To Read Article
Effective March 1, 2012, the FTC’s new Business Opportunity Rule1 becomes effective (the “New Biz Op Rule”). The New Biz Op Rule significantly reduces a business opportunity seller’s disclosure obligation to a prospective purchaser, as the previous format (the FTC Disclosure Statement containing 20 items of required information) has been changed and reduced to a 1-page form requiring 5 items of information that the seller is required to disclose. However, the New Biz Op Rule applies to more companies as, not only business opportunity sellers currently covered by the Interim Biz Op Rule will be subject to the New Biz Op Rule, but also work-at-home programs such a jewelry assembly and envelope stuffing, will meet the expanded definition of a business opportunity.

State Franchise Disclosure and Registration Laws - Click To Read Article
The articles explains state franchise registration and disclosure laws and provides a 50-state anaylsis of each state as to whether the state has franchise disclosure and registration law and/or business opportunity law and a franchisor's obligation to register under such laws, the documents required to be filed, filing fees, review period and other filing information.

E-Mailing the Franchise Disclosure Document to Prospective Franchisees - Click To Read Article
Under the FTC Franchise Rule,a franchisor can deliver the Franchise Disclosure Document (“FDD”) electronically by e-mailing the FDD in a pdf form or mailing a FDD copied on to a CD-ROM to a prospective franchisee. The first personal meeting requirement has been eliminated. The prospective franchisee must have the FDD and Exhibits at least 14 calendar days before the franchisee signs any agreement with the franchisor or gives the franchisor any money. Electronic delivery of the FDD disclosure will save the franchisor substantial time and money as the cost of copying and mailing a Franchise Disclosure Document and Exhibits, let alone personnel cost, really adds up. The FTC estimates that the cost to copy and mail a disclosure document is about $35.00 each. The states having franchise registr

FTC Interim Business Opportunity Rule Applies to Certain Business Opportunity Sellers - Click To Read Article
Certain business opportunity sellers are subject to the FTC Interim Business Opportunity Rule 16 C.F.R. Part 437. The FTC Business Opportunity Rule applies to “business opportunity ventures.” A business opportunity venture has 3 elements: 1.The buyer sells goods or services which are supplied by the business opportunity seller or a person affiliated with the business opportunity seller; 2.The business opportunity seller assists the buyer in any way with respect to securing accounts for the buyer, or securing locations or sites for vending machines or rack displays, or providing the services of a person able to do either; and 3.The buyer is required to make a payment of $500 or more to the seller or person affiliated with the business opportunity seller at any time before or within 6 months after the business opens.

Keeping Your Distributorship/Dealership Offering From Being a Franchise or Business Opportunity - The Don'ts - Click To Read Article
A manufacturer of a product or a seller of distributorships/dealerships must make sure, from the inception of its program through sale and performance, that its program does not inadvertently become the sale of an unregistered and undisclosed franchise or business opportunity. Merely saying that you are not a franchise or business opportunity and calling your offering something else is of no help. To do this properly and effectively, you must know the elements of a franchise and of a business opportunity and avoid having these elements in your distributorship/dealership or other product sales program. Here is a brief description of the 3 "don'ts" to avoid the franchise laws and the 5 "don'ts" to avoid the business opportunity laws.

Licensing v. Franchising - Click To Read Article
This article discusses the elements of a trademark license and of a franchise and the "Twilight Zone" between the two with respect to the degree of assistance the licensor provides and the degree of control the licensor exerts over the licensee method of operation. The danger is having a license agreement ruled to be a franchise and the licensor to be in violation of the FTC Franchise Rule and state unfair and deceptive trade practice laws for failure to comply with the pre-sale disclosure requirements of the FTC Franchise Rule.

Business Expansion Stratagies - Click To Read Article
When a company desires to expand its outlets of distribution (not just increase sales at existing units), there are many possible business expansion strategies that can be implemented to expand the business network. Each strategy should be examined, and the advantages and disadvantages explored, to determine which is the best method for you. Please keep in mind that these strategies are not mutually exclusive. That is, you can use more than one method within your network. There is also the ability to have vertical integration of all or portions of the manufacture through retail sales channel (the "Value Chain"). The possible business expansion strategies are: Company-Owned Expansion; Joint Ventures and Partnerships; Independent Sales Representatives; Licensing; Disitrbutorships/Dealerships; Business Opportuniities and Franchising.

Determining the Business Entity Best for Your New Business - Click To Read Article
One of the most important matters that a person needs to focus on in the early stages of starting a business is determining the type of business entity to operate the business. You need to address this issue with the advice of an experienced business attorney in coordination with a certified public accountant. Most individuals operate his or her business under one of the following entities: 1. Sole Proprietorship; 1. General Partnership; 2. Limited Partnership; 3. Joint Venture; 4. "C" Corporation; 5. "S" Corporation; or 6. Limited Liability Company. While most new businesses are either an S corporation or a limited liability company, you should analyze each type of business entity to determine which is best for your business from a liability, tax, investment, legal, formation, operati

Why You Need a Lawyer When Buying a Franchise - Click To Read Article
There are a number of issues, which you should consider at the time of purchase, where an attorney can render valuable assistance to you. 1. Evaluate various franchise opportunities including a review of each franchisor's Franchise Disclosure Document. 2. Negotiate and finalize the franchise agreement and other agreements. 3. Forming a corporation or limited liability company. 4. Estate planning opportunities such as an "estate freeze." 5. Lease negotiation. 6. Fictitious name registration. 7. Special legal issues such as licensing.

Special Issues for an Area Developer - Click To Read Article
If you desire to own and operate more than one franchise outlet, you may want to consider becoming an area developer. An area developer is really a multi-outlet franchisee that commits at the beginning of the relationship with the franchisor to open a number of outlets within a given area (“Development Area”) over a specific period of time (“Development Schedule). This is different from the multi-outlet franchisee that may have first purchased one outlet and later purchases another outlet, etc., without ever being contractually bound to open further outlets. there are issues and terms unique to an area developer that must be addressed to make the relationship between the franchisor and the developer more equitable by having a fairer area development agreement.

Special Issues for an Area Representative - Click To Read Article
An area representative is best described as a "super" franchise broker and servicing agent for the franchisor. You will be disclosed in ITEMS 2, 3 and 4 of the franchisor's Franchise Disclosure Document with your 5-year biography and litigation and bankruptcy history if you will have management responsibility relating to the sale or operation of franchises. An area representative differs from a subfranchisor in that the area representative uses the franchisor's Franchise Disclosure Document and the franchise agreement is signed directly between the franchisor and the franchisee. The area representative is not a party to the franchise agreement. Under the area representative agreement between the franchisor and the area representative, the franchisor delegates to the area representative certain of the servicing and support obligations

Special Issues for a Subfranchisor - Click To Read Article
If you want the right to sell franchises on behalf of a franchisor and, perhaps, also operate your own franchises, you may want to become a subfranchisor. A subfranchisor is sometimes called a "master franchisee," particularly in international deals. A subfranchisor steps into the shoes of the franchisor and acts as the franchisor in a given area (for example, state or county). A subfranchisor sells its own franchises and directly enters into a franchise agreement with a franchisee. The franchisor is not a party to the franchise agreement. A subfranchisor is subject to the FTC Franchise Rule and state franchise registration and disclosure laws to the same extent as a franchisor. Therefore, a subfranchisor is obligated to have its own Franchise Disclosure Document.

Is Your Franchise a 20-Year - Click To Read Article
The typical franchise agreement is usually for an initial term of 5 to 10 years with a right to renew for an additional term. This means that at some point in time the franchise relationship may end if the franchisee does not exercise a right to renew or where the franchisee has no additional right to renew and the franchisor refuses to renew. In representing prospective franchisees, I have had numerous occasions to ask the franchisor: “What happens after 20 years when the renewal term ends?” Surprised at the question, the candid response by the franchisor was “I don’t know, we haven’t been operating that long.” My reply was that according to the literal terms of the franchise agreement, there is no legal obligation for the franchisor to renew the franchise agreement again even if the franchisee wants to.

How to Avoid Having Your Creditors Pierce the Company Veil - Click To Read Article
One of the principal reasons you form a corporation or a limited liability company (“LLC”) to own and operate your business is to insulate your personal assets from the claims of business creditors in case your business is not successful. Generally, your personal exposure is limited to the amount of capital you have contributed to the company. However, if you fail to follow the requisite business formalities, your attempt to insulate yourself from the claims of business creditors may be futile.

Buying a Business Opportunity - Click To Read Article
The appeal of business opportunities is that the seller generally offers to purchasers a chance to be their own boss by providing a "turn-key" business including materials needed to produce goods or provide services as well as training in the field coupled with some type of continuing support. As with franchises, sellers of business opportunities are primarily offering purchasers their "formula for success." Purchasers rely on the expertise of the seller in an effort to avoid costly mistakes that new business owners routinely make. Business opportunities are now offered in a myriad of fields too numerous to mention. Before you buy you need to do your own due diligence and hire a lawyer to protect you as this industry is known to be inhabited by frauds and scamers.

Buying or Selling An Existing Franchise Outlet - Click To Read Article
The sale of an operating franchised business has unique issues beyond the typical issues involved in the sale of a business whether by the sale of assets or the sale stock due to the legitmate business interest of the franchisor and the terms of the franchise agreement to which the seller of the business is subject. This article discuses these uniques issues including the franchisor's right of first refusal, the franchisor's approval of the buyer, the payment of a transfer fee, the training of the buyer; the buyer's signed a new Franchise Agreement; rstrictions on advertising the business for sale; the franchisor's veto right is the price is too high of there is too much debt and forced sale upon the disability or death of the franchisee.

COLLECTIVE NEGOTIATION OF FRANCHISE AGREEMENTS - A Non-Legislative/Non-Litigious Solution to Many of Problems - Click To Read Article
An increasing number of franchise systems are now entering into a cycle of renewal. The dilemma currently faced by renewing franchisees is either to: (i) sign the new franchise agreement as presented, without negotiation; or (ii) "get out of the business," as most franchisees are subject to a 1-3 year covenant not to compete when the franchise agreement ends. Neither alternative is reasonable. Many franchise agreements provide that when it ends, the franchisor can take over the franchisee’s lease, taking over the franchisee’s telephone numbers, take over the franchisee’s customer list and perhaps giving the franchisor the right to purchase the business assets for an unfair price such as book value. . The franchisee has not bought a business creating equity for the future but the franchisee has merely leased the business for 10 years.

An Overview of Federal and State Business Opportunity Laws - Click To Read Article
Business opportunities are regulated under the FTC Business Opportunity Rule (16 C.F.R. Part 437) and by 25 states with business opportunity laws requiring pre-sale disclosure and, in most of these states, registration of the business opportunity offering. While “business opportunities” and “franchises” are somewhat similar because both involve the sale of a product or service to enable a person to start a business, one of the principal differences in the definitions used in the statutes is that there is no license of a trademark or substantial association with a trademark in connection with a business opportunity. Franchisors should be aware of these laws, because they may be a trap for the unwary franchisor, particularly if the franchisor’s principal trademark has no

An Accountant's Representation of a Franchise Client - Click To Read Article
The articles discusses the franchise laws and how they affect both franchisors and franchiees and the specfic needs that these types of clients have for their tax and accounting needs. This includes the special financial accounting requirements of franchisors including audited financial statements and the reporting of franchisor income and expenses. This also includes the needs of prospective fanchisees in preparing a busines plan and setting up a new company to operate the franchised business.This will help accountants better understand these types of clients and facilitate the accountnt's interaction with the attorneys for franchisors and franchisees.

I Wished I Had Hired a Franchise Lawyer When I Bought the Franchise - Click To Read Article
In the 34 years of representing buyers and sellers of franchise, I have nearly seen it all. I feel like an emergency room physician when I meet a client who bought a franchise and has lost hundreds of thousands of dollars in a failed or failing business. The franchisor is threatening termination and a suit for lost profits against them personally, there are in breach of their lease and their lease guaranty, and their SBA loan secured by their home is in default.





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