Copyright Articles 1996 - 2013 - All Rights Reserved

Minnesota criminal law, criminal defense, Divorce, custody, Lawyers

Selling a Franchise 
 


Search
Go


 General Info



About this Site


 ASK-A-LAWYER



Ask-A-Lawyer: Questions


 BUSINESS



Business & Corporate Law


Minnesota Franchise Law


Freedom of Information Act


 CRIMINAL DEFENSE



Criminal Defense Center


DWI Center


 DIVORCE



Minnesota Divorce


Collaborative Law


 ESTATE PLANNING



Estate Planning Center


 JUVENILE LAW



Minnesota Juvenile Justice Center

Minnesota Lawyers  
Ofc. 612.240.8005  
Suite 700  
5775 Wayzata Boulevard  
St. Louis Park, MN 55416  

maury@beaulier.com  


Sitemap





Google

Selling a Minnesota Franchise - Dangers
3. Setting up a Franchise Business --Selling a Franchise

Selling a franchise is not like selling a car. A franchisor and it s agents has an obligation to make accurate statements about the business that is being sold. Problems cannot be covered up or hidden and overselling must be avoided or liability can result.

Undoubtedly, the sale of any franchise usually means that the prospective purchaser has many questions about the businesses viability. This usually includes performing Due Diligence by the buyer and seeking documentation and assurances about the franchise opportunity they are considering. The danger is that the franchise seller will try to seal the deal by making assertions related to the business and its potential earnings. This often results in franchise seller overstating earnings potential. This is not allowed by franchise regulatory law and is often the basis for franchise litigation claims.

The danger is great since the UFOC Guidelines do not clearly define what an earnings statement may be. Even the most innocuous statements may be considered an earning claim for which a franchisor may be subjected to liability. Even the following:

  • “Our stores generally produce a 7% return on your investment within two years."
  • “Gross profits may be expected exceed 25% of your sales."
  • ’We have never had a store produce less than a $50,000 a year profit."
  • “You should be able to break within the first two years.”
  • "The numbers you are considering sound realistic to me."

Because of this potential liability, it is important that in selling a franchise, the franchisor and its agents should avoid advertisements, promotional literature or statements that are communicated to potential buyers regarding the earning potential of the new franchise.

If earnings statements are made, they must be based on a supported earnings claim. In other words, the representations must have a reasonable basis in fact. That may mean providing documentation in the form of average gross sales for the existing locations in the system and/or profit and loss statements. Any financial statements provided to a prospective franchise buyer should be include with supporting documentation in the Uniform Franchise Offering Circular (UFOC).

Any earnings statement must be based on other similarly situated franchise units. They must be reasonably similar with regard to the size and nature of the store being sold. The earnings statement must also reflect the current financial production. In other words the documentation should be based on production in a proximate time period and not based on production that predate the proposed purchase by a number of years.

Franchisors should work with their attorneys to avoid potential liabilities resulting from sale. This would include:

  • establishing written policies requiring that any claims or representations pertaining to earnings, sales or profits be in writing and limited to the UFOC;
  • compiling, reviewing and including recent records to substantiate any earnings claims;
  • establish procedures to update UFOC earnings statements periodically but no less than annually;
  • establishing training regimens for sales personnel and company employees.

For Assistance on your Franchise Issues Call 612-240-8005

Minneapolis and minnesota franchise lawyers and attorneys

Call 612-240-8005

Ask-A-Lawyer
Ask-A-Lawyer your Franchise or Business questions by e-mail.

Franchise Lawyers
Franchise Lawyers

Minnesota Franchises Explained
An overview of what is necessary to create a franchise

Registering a Franchise in Minnesota
Setting up a Minnesota Franchise - Registering a Franchise

The Franchise Circular - UFOC
Setting up a Minnesota Franchise - The Franchise Circular

Business Bulletin Board
Ask Franchise or Business questions on our interactive bulletin board or share business ideas.

Construction Law is a rapidly growing area of law in the twin cities and Western Wisconsin. Is your investment protected? Do you have procedures in place for liens and debt collection or liability issues? Click Here for more

Employment Law is an issue that every business must address. Proper preparation requires having employee handbooks and procedures to avoid pitfalls associated with employee issues. Click Here for More

Real Estate & Property investment including the sale, purchase and development of property requires specialized procedures to protect your investment . Click Here for More.

Business Shareholder Disputes. Does your business have a shareholder dispute? Are there issues valuing shareholder equity? Do wish to avoid potential future disputes with a comprehensive shareholder control agreement? Click Here for More

Debt Collection for Creditors. Do you have a debt to collect or a Judgment that you thought was uncollectible? Click Here for More

Business Law Library
How do I start a Minnesota Business?






About this Site  |  Ask-A-Lawyer: Questions  |  Business & Corporate Law  |  Minnesota Franchise Law  |  Freedom of Information Act  |  Criminal Defense Center  |  DWI Center  |  Minnesota Divorce  |  Collaborative Law  |  Estate Planning Center  |  Minnesota Juvenile Justice Center

LEGAL SOLUTIONS FOR BUSINESS AND FAMILY

Any information contained on this site is general in nature. You should not rely on any articles, postings or other information on these pages as legal advice or to create an attorney-client relationship. If you are in need of legal advice concerning a particular matter, you are encouraged to contact an attorney in your state.

Any Lawyers referred have indicated the geographic area and the areas of law in which they will accept referrals. This site makes no investigation into the referral attorney's particular abilities to handle the Client's legal matter. Before employing the attorney, the Client should interview the attorney and make whatever investigation the Client feels is appropriate into the attorney's qualifications to handle the Client's legal matter.

Minnesota Lawyers


Sign In

 Sign In