Monthly Archives: February 2013

Tax Rate Hikes Have S-Corp Owners Considering A Change In Their Corporate Structure

The rise in personal income tax rates has many S-Corp owners in a “wait and
C” position.  The “C” stands for C-Corp, and according to a recent piece in
The Wall Street Journal entitled, “Firms Puzzle Over Tax Riddle”, many
owners are changing or considering changing their tax status, from S to C,
in order to avoid paying higher taxes.  I strongly recommend having a
conversation with your legal and tax professionals to determine if you are
taking full advantage of the tax strategies available under existing law.
The result may be a demonstrably significant tax savings.

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Filed under Franchise Insight, Franchisors & Obamacare, In The News, Restaurant & Hospitality Law, The Franchise Legislation Monitor

Power Shift?

As I predicted in late 2012, we are sure to see several states advance new
legislation or revisit existing laws that impact the franchise relationship.
What I did not predict was that Ohio would lead the way.  The recently
amended Ohio  Business Opportunity Plan Law clarifies the private right of
action for franchisees for material omissions or misstatements in a
franchisor’s Franchise Disclosure Document (FDD).  It also invalidates any
contractual provision that provides for a jurisdiction or forum outside the
state of Ohio (for Franchisees located in Ohio).  An argument can be made
that the new law provides benefit for franchisors and franchisees in Ohio.
The attached link provides one author’s analysis.

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Filed under Franchise Insight, In The News, Restaurant & Hospitality Law, The Franchise Legislation Monitor

5 Ways Franchisors Can Help Themselves By Helping Franchisees Avoid Costly Commercial Lease Mistakes

When I was in-house counsel with an international franchise system in the
mid to late 90’s, one of my first responsibilities was to review each lease
our franchisees were contemplating, to help them avoid costly mistakes.
Frankly, those mistakes, if made, can place both franchisee and franchisor
at risk.

Here are a few tips when negotiating those commercial leases:

1) In this economic climate, almost everything is open for negotiation.
Focus on key business points that will impact your bottom line.

2) Begin lease negotiation with a letter of intent.  Once the franchisee
reaches agreement on key points, they can move on to a form of lease.  This
will save valuable time and money (i.e. legal fees).

3) Make sure the franchisee understands the economics of the geographic
market.  Consult or collaborate with a real estate professional who can
guide them on market rates for commercial space.

4) Most landlords will look for a personal guaranty.  Franchisees should do
their best to limit any personal exposure and to make certain that such a
guaranty does not interfere with or undermine their banking relationship.

5) Exclusivity provisions, go-dark clauses, relocation clauses, renewal
terms, remedies upon default and damage/destruction clauses are all critical
terms of a commercial lease that can be overlooked once rent figures, term
and landlord/tenant improvements are hammered out – don’t lose sight of

As with most business exercises, the most critical decision a business owner
will make is how to assemble his/her team.  Make sure you are working with
experienced professionals who will truly help them avoid risks that can have
significant consequences.

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Filed under Franchise Basics, Franchise Insight

Meet Your New Franchisee, the Sons of Anarchy…

The other night I was flipping through channels and stumbled upon a repeat of the popular FX series “Sons of Anarchy” which is based on a fictitious motorcycle gang.  I immediately thought of my run in with a similar bunch.  I was in-house counsel with an international automotive aftermarket franchise system in the late 90’s.  We had franchisees of varying backgrounds, including members of a well known, and feared, motorcycle gang (or club, depending upon your point of view).  Needless to say, when our motorcycle gang member franchisee got behind on his royalty payments, we tended to approach the matter differently than our run-of-the-mill franchisee.  Rather than a letter from yours truly demanding immediate payment, our head of collections usually made an in person visit.  Fortunately, our head of collections was a 6’4” former US Marine Gunnery Sergeant who wasn’t intimidated by anyone, including franchisees who happened to be gang members . . . so they typically had a nice chat and we worked it out.

So what’s the point?  Franchise lawyers preach uniformity.  Deviation from system standards is never a good thing.  In fact, treating franchisees differently in some jurisdictions may lead to potential claims and defenses in the case of termination or non-renewal of the franchise agreement.  It is unfortunate that too many lawyers view every term and condition of the franchise agreement as black and white.  Too many fail to look for a business solution and want to jump right into litigation mode.  The practical truth is that franchisors must be nimble and not rigid in their approach to certain issues within their system.  Are there going to be hard and fast rules to address material defaults or situations that are potentially damaging to the brand?  Of course.  But underlying every franchise agreement is a relationship between people who have a common goal, to succeed in business.  If the franchisor loses sight of that, the game is lost . . . unless you can call in the Marines.

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Filed under Franchise Insight

Fewer benefits? More shared costs with employees?

As business owners struggle to develop their plan to manage the Affordable Care Act (ACA) mandate within their businesses, no doubt we’ll see many articles like this one in Forbes Magazine: 4 Options To Manage Increased Costs Of Obamacare.

Fewer benefits?  More shared costs with employees?  Kind of reminds us of that famous beer advertising campaign where people argued whether the light beer had more taste or was less filling.  Either way, it’s a light alternative to the employee benefit, formerly known as healthcare.

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Filed under Franchisors & Obamacare