For prospective or newly fledged franchisors and franchisees in Missouri, the question of who is liable for a franchise can be a cause for concern. Thankfully, the rules are fairly simple and straightforward. For a full breakdown of who is liable for a franchise in Missouri, please read on, then contact one of our experienced franchisee litigation attorneys today. Here are some questions you may have:
What are franchisees liable for in Missouri?
As a franchisee, you need to be aware of two key concepts. They are as follows:
The Personal Guaranty:
It is standard practice for franchisors to request a personal guaranty from their franchisees. The franchise agreement sets out the guaranty, which requires you to back your financial and contractual obligations to the franchisor with your personal assets. While franchisors may be open to negotiating certain provisions, most will not be willing to waive the personal guaranty. Furthermore, any landlords, creditors or lenders you work with in your capacity as a franchisee will likely also request a personal guaranty.
The great thing about franchise liability is that it is limited. Generally, franchisors allow their franchisees to operate as legal entities, as opposed to natural persons. The limited liability company is the most popular legal structure with franchisees. When dealing with third parties, including customers, employees, vendors, suppliers and just about anyone who isn’t the franchisor, you can benefit from limited liability. This legal structure will insulate your personal assets – i.e. your property and the savings in your personal bank account – if a third party sues the franchise.
Are franchisors liable for the acts of their franchisees?
Typically, your franchisor will not incur liability on your behalf. This includes your contracts, debts or any other obligations. As a franchisee, you purchase the right to use the franchisor’s name, trademark, copyrights, trade secrets and marketing system as an independent business. However, when a court establishes that the franchisor has retained a high degree of control over your business, the law will treat you, the franchisee, as the franchisor’s agent or employee, and the franchisor will incur vicarious liability.
What are some examples of courts holding franchisors liable?
Examples of situations where a court may find a relationship of agency include:
- The franchise agreement sets out stringent rules that govern the day-to-day operation of the franchise
- The franchisor carries out regular inspections of the franchisee facility
- The franchisee shares profits with the franchisor instead of making royalty payments
Speak with one of our skilled franchisee law attorneys if you have any further questions or would like to begin preparing your case.
Contact Our Experienced Franchise Lawyer Today
If you have any franchising issues, contact Fortman Spann, LLC online today to schedule your initial consultation.