Buying or selling a franchised business in NJ involves identifying and then resolving many details and decisions. If you are buying or selling a franchised business, you may not know that you need the franchisor’s consent and, most of the time, the landlord’s consent. You cannot just assume ownership of the franchised business or the commercial lease.
In addition, the controlling franchise agreement must be reviewed to ensure the terms of the purchase or sale agreement comply with the governing documents. At Hanlon Niemann & Wright, we work to ensure that the pre- and post-closing obligations to the franchisor are appropriately identified and assigned to the new owner.
We have years of experience helping clients buy and sell businesses. Our clients appreciate that we provide high-quality legal work and prompt, responsive service. If you plan on purchasing a franchised business in New Jersey or selling a NJ franchised business, contact Fredrick P. Niemann today. You can reach me at (732)-863-9900 or email fniemann@hnlawfirm.com.
Whether it’s assistance with just one contract or establishing a lasting franchise relationship with a law firm, Hanlon Niemann & Wright would like to work with you. Count on us for your legal needs.
Below is a List of Details to Address When Selling, Assigning or Transferring the Ownership of an Existing Franchise in NJ
Before transferring, assigning, or selling a franchise or an interest in a franchise to your buyer, as the franchisee, you must notify the franchisor in writing of the intended sale. Generally, your notice must include (1) the transferee’s name, address, financial qualifications, and (2) business experience.
If you fail to notify the franchisor and fail to satisfy the pre-sale obligations set forth in the franchise agreement, the franchisor can (and almost certainly will!) allege a breach of the franchise agreement and may seek to terminate your franchise.
Often, the franchisor will have a period (generally thirty (30) – sixty (60) days) to send a written response either approving the transfer or specifying the reasons for denying the transfer.
In NJ, a commercial good-faith standard governs the conduct and affairs between a franchisor and a franchisee. Accordingly, the franchisor must act in good faith when conditioning or refusing to approve a franchise transfer.
TESTIMONIAL
In my negotiations with a large international corporation, Fredrick P. Niemann worked with me to the end. They were thoughtful and proactive in identifying the issues of concern to me, issues I hadn’t even thought of. I was very satisfied with the services they rendered.
– Cheryl Scheidler, Wall Township
When Selling a Franchise, You Need to Act With Caution! Don’t risk a costly mistake. Reach out to Fred personally today, at (732)-863-9900 or email him personally today at fniemann@hnlawfirm.com to schedule a low cost and convenient consultation about your NJ franchise matter.
Buying a Franchise in New Jersey
When you buy a franchise in NJ, you have instant name recognition for your products, services, and business. In addition, you get training and day-to-day support to help you succeed. But purchasing a franchise is like any other investment: there’s no guarantee of success.
The Benefits and Responsibilities of Franchise Ownership
A franchise enables you, as a new business owner, to operate a business effectively. You pay a franchise fee, and you get a system developed by the company to operate a business, the right to use the franchisor’s name, and the franchisor’s assistance.
Buying a franchise may reduce your investment risk by enabling you to associate with an established company. But the franchise fee can be substantial and generally is. You will also have other costs: for example, you may be required to pay royalties and a percentage of gross sales, spend a percentage of revenue on local and national marketing campaigns, or upgrade facilities or equipment on a prescheduled basis. When you buy a franchise, you must be prepared to give up some control over your business operations as you take on contractual obligations with the franchisor, for the mutual benefit of both parties.
Costs of Purchasing a NJ Franchise
Initial Franchise Fee and Other Expenses When Purchasing a New Jersey Franchise
Your initial franchise fee will range from several thousand dollars to several hundred thousand dollars and may be non-refundable. You may incur high costs to rent, build, and equip a location to operate from and to buy initial inventory. Most of the financial and other requirements for being a franchisee are set out in the franchise agreement signed by the seller of the franchise business and the franchisor. Be sure you ask for, review, and read the details of the franchise agreement closely before you sign a franchise purchase agreement.
Control Over Management and Operations of Your NJ Franchise
To ensure uniformity, franchisors usually place controls on how franchisees conduct their business and restrict their ability to exercise their own business judgment, including:
- Site Location Approval by the Franchisor of Where You Can Do Business
- Design and Appearance Standards for Your Franchise Business
- Restrictions on Goods and Services You Sell
- Restrictions on the Means and Methods of Operation.
- Franchisors may dictate the days and hours of business operations; pre-approve signs, employee uniforms, advertising; and demand that you use certain accounting or bookkeeping systems.
- Restrictions on Sales Area – A franchisor will limit your business to a specific geographical territory and will identify how internet marketing and sales will be handled.
Investigate Before You Invest!!
The All-Important Disclosure Document
Before you invest in any franchise system, get a copy of the franchisor’s disclosure document. Under Federal Law, you must receive a disclosure document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. (This does not apply to a franchise resale. You must obtain the signed franchise agreement from the seller.)
You have the right to ask for — and get — a copy of the disclosure document once the franchisor has received your application and agreed to consider it. Indeed, you may want to get a copy of the franchisor’s disclosure document before incurring any expenses to investigate the franchise offering.
Read the entire disclosure document. Don’t be shy about asking for explanations and answers to your questions before you invest. After closing, it will be too late to do this.
Talking to current franchisees and franchisees who have left the system within the last year may be the most reliable way for you to verify the franchisor’s claims.
There’s no question that the disclosure document is a critical document for a potential franchisee.
Additional Sources of Information
Accountants and Lawyers
In addition to reading the company’s disclosure document—including any updates—and speaking with current and former franchisees, consider speaking with an accountant and a lawyer. An accountant can help you understand the company’s financial statements, develop a business plan, assess any earnings projections and the assumptions they’re based on, and help you pick a franchise system that is best suited to your investment resources and your goals.
A lawyer can help you understand your obligations under the franchise contract. These contracts are long and complex. A contract problem that arises after you have signed the contract may be very expensive to fix — if it can be fixed at all. Choose a lawyer who is experienced in franchise matters, but rely on your own lawyer or accountant rather than the franchisor’s recommendation. Contact Fredrick P. Niemann, Esq., an experienced and trusted NJ franchise law attorney. He can help you navigate the process of deciding whether to purchase a franchise.
NJ Government Regulations of Franchises
NJ has a very weak regulatory structure involving franchises. You will not find much help under NJ law.
That’s why you should reach out to me to discuss your prospective NJ franchise purchase or sale. We’ll work to protect your legal rights and offer practical advice in the real world of NJ franchises.
Selling, Assigning, or Transferring Ownership of an Existing Franchise in NJ
Before transferring, assigning, or selling a franchise or interest in a franchise, the franchisee must notify the franchisor in writing. The notice must include (1) the transferee’s name, address, financial qualification, and (2) business experience during the previous five (5) years.
Failure to notify the franchisor before a transfer, assignment, or sale permits a franchisor to allege a breach of the franchise agreement and to terminate the franchise.
Again, in NJ, a commercial good-faith standard governs conduct between a franchisor and franchisee, and the franchisor must act in good faith when refusing to approve a transfer or in its treatment of its franchisee.
Fredrick P. Niemann Esq.
Have questions about the franchise disclosure documents? You may call Mr. Niemann at (732)-863-99001 or email him at fniemann@hnlawfirm.com to schedule a low-cost and convenient consultation about your NJ franchise matter.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Franchise Law Attorney