Owning a franchise is a popular way to earn income in Michigan, but franchise ownership entails a number of legal issues and considerations. Prospective franchise owners in and near the greater Detroit area will need to have the advice and services of a Bloomfield Hills business lawyer.

What is required to become a franchise owner in the State of Michigan? What should a prospective franchisee know about franchise contracts and franchise law? What legal concerns will a franchise owner in Michigan need to consider?

If you will keep reading this brief discussion of franchises, your rights, and franchise laws in Michigan, you will find some of the answers you may need, but if you are a franchise owner – or if you are considering the purchase of a franchise – you should also have the personalized legal advice that a Bloomfield Hills business attorney offers.

How Does Michigan Law Define a Franchise?

Under the law in Michigan, a franchise is defined as an agreement or contract – whether written or oral and whether implied or expressed  (in the real world,  this should always be in writing) – between two or more parties in which:

  1. A franchisee (a local franchise owner) receives a right to distribute or sell services or goods under a system or plan organized and spelled out by the franchisor (the parent company).
  2. A franchisee receives a right to distribute or sell services or goods using the franchisor’s advertising, trade name, trademark, service mark, and other marketing symbols or slogans.
  3. The franchisee pays a fee to the franchisor.

What is a Franchise Disclosure Document?

The Federal Trade Commission requires franchisors to provide a Franchise Disclosure Document to prospective franchisees before finalizing the sale of a franchise. The document is required so that prospective franchisees may make a well-informed decision before investing in a franchise.

A Franchise Disclosure Document provides details about the franchisor and the franchise opportunity, the franchisor-franchisee relationship, the fees that will be required, and other details about franchising.

Is Registration Required? How Do You Register a Franchise?

Michigan requires a franchise to be registered before it may operate in this state. However, Michigan does not require a franchisee to submit a copy of the Franchise Disclosure Document with the registration application and fee. For franchisees, Michigan is a “notice only” state.

To register a franchise in this state, you must pay – as of 2022 – a $250 filing fee to the Michigan Department of the Attorney General. A filing fee must be accompanied by a Notice of Intent which must be typed or printed on the franchisor’s letterhead and must include:

  1.  the franchisor’s name and business name (DBA)
  2.  the principal business address of the franchisor
  3.  a brief explanation of the franchisor’s operations

A franchise is registered when the franchisee receives a confirmation of the registration from the Department of the Attorney General. Each year, franchisees must refile an updated Notice of Intent accompanied by the filing fee.

What Are Michigan’s Other Rules Regarding Franchises?

Michigan law requires a franchisor to provide a Franchise Disclosure Document to a prospective franchisee at least ten business days before that franchisee signs the franchise agreement or pays any franchise fees.

Franchisors with unaudited financial statements and a net worth below $100,000 also must post a surety bond or escrow the initial fees upon the franchisee’s request. Michigan law also places these restrictions, among others, on franchise agreements:

  1.  A franchise agreement may not restrict a franchisee’s right to join a franchisees’ association.
  2. Franchisors must show good cause before terminating a franchise agreement. Franchisees must be given thirty days to remedy the cause of an imminent termination of the agreement.
  3. If the agreement is for less than five years, if non-compete provisions are enforced, and if a franchisor does not renew the agreement, the franchisor must reimburse the franchisee, at the fair market value, for any supplies, inventory, fixtures, equipment, and furnishings.
  4. A franchisor may not renew an agreement with a franchisee on terms different than the terms offered to others who own franchises.
  5. If a dispute emerges between the franchisor and the franchisee, litigation or arbitration of the dispute may not take place outside of Michigan.

A franchisor who violates any of these provisions exposes itself to liability and may in some cases face criminal and/or civil penalties.

What Else Should Prospective Franchisees Know?

What is listed above are only a few of the provisions of Michigan’s franchise laws. If you are a prospective franchisee, you should review the laws and the terms of your franchise agreement with a Bloomfield Hills business lawyer to avoid legal difficulties or confusion in the future.

A franchisor-franchisee relationship is usually for a term of several years. Prospective franchisees should understand when and how either party may terminate this relationship, what constitutes a breach of contract, and how to transfer a franchisee’s interest in the business.

What Are the Other Reasons a Franchisee May Need an Attorney’s Help?

Franchise agreements are complicated. Any misunderstanding or any violation of the agreement could cost you dearly. However, if you are a franchisee in or near the Detroit area, your franchise agreement is not the only reason you may need a business attorney’s advice and services.

In fact, you should ask a Bloomfield Hills business attorney to review all of your contracts and all of your other important business documents. Never sign a contract or a business agreement until and unless you understand exactly what that agreement will require of you.

A Detroit-area business attorney will also help you develop a business plan, and your attorney can provide legal advice and training to your managers and supervisors about hiring, harassment, and discrimination laws.

Additionally, your business attorney can help you with liability concerns, tax planning, and compliance with advertising, environmental, and zoning regulations.

When Should You Contact a Michigan Business Attorney?

A business lawyer will provide the sound and reliable legal advice that every Michigan business owner needs. When you own a business in this state – whether or not it is a franchise – you need quick solutions to legal problems before those problems affect your operations or profits.

Don’t wait for a problem to emerge. Put a business lawyer from Kendal Law Group on your team from the start.

Your lawyer will help you put solutions in place before legal problems emerge and will help you establish the practices and policies that will keep you and your business profitable and in compliance with the law.