Restrictive Covenants in New York Franchise Agreements: Strategic Use of Restrictive Covenants by Franchisors

New York franchise agreements typically contain restrictive covenants against competition, or a franchise non-compete clause. Such provisions are meant to prevent franchisees whom have rights to operate a business modeled on the franchise from engaging in activities like operating a business that competes with the franchisor following termination of the franchise relationship. Most franchise agreements have a limited restrictive covenant term. Restrictive covenants in franchise agreements serve a number of purposes, including:  Protecting the franchisor’s goodwill;  Protecting the franchisor’s confidential information;  Ensuring loyalty to the franchise network; and  Preventing former franchisees from becoming future competition. In-term Covenants & Post-term Covenants: Franchise agreements shall often include two kinds of restrictive covenants: “in-term covenants” and “post-term covenants.” In-term covenants limit what a franchisee can do during the term of the franchise agreement (for example, restricting the franchisee from operating a competing business within a certain geographical vicinity during the term of the

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Franchises Available to Entrepreneurs in New York

If you are serious about investing in a franchised business it best to consider the three basic type of New York franchises, typical, in the New York market. The following are the major types of New York Franchises. Business Format Franchises: In business format franchises, a company expands by supplying independent business owners with an established business, including its name, products, rules and trademarks.  The franchisor, generally, assists the independent owners in launching and running their businesses.  In return, the business owners pay fees and royalties to the franchisor.  In most cases, the franchisee also buys its business supplies from the franchiser or from approved vendors.  Fast food restaurants are good examples of this type of franchise. Product Franchises: Also called a “trade name franchise.”  Product franchises involve the sale and/ or manufacture of products.  The business model covers the overall management of the sale of these products.  A franchisor supplies

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NY Franchising Red Flags

If you are thinking about entering into a franchise agreement in New York, please consider these New York Franchise Warning Signs.  All of the laws in New York that are intended to protect potential investors in franchises are not meant to act as a substitute for good business sense, so be aware of these common red flags, do your due diligence and hire a New York franchise lawyer to assist in the negotiation and evaluation of the franchise opportunity. Failure to Disclose Legally Necessary Details to Franchisees Under New York law, no offer or sale of a franchise can take place until the franchisor has registered franchise disclosure documents (FDD) with the state of New York.  Sometimes called a prospectus, the FDD contains 20+ different items of information about the franchise including the the history of the fanchisor, required fees and investment costs – among other things.If you do not receive

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Definition of a Franchise in New York State: New York Franchise Law Basics

New York has a broad definition of a franchise, thus, leading to a broad range of mere “licensing” and “agent/distributor” relationships as franchises.  Any business organization that is deemed or may be deemed a franchise by the State of New York should, immediately, retain a New York-based franchise attorney with significant experience in the business and legal side of franchising in NY.  A designation of a business relationship as a franchise, immediately, requires obligations of the franchisor including disclosure and registration requirements.  Our New York franchise lawyers shall be writing followup articles on franchise obligations under New York law over the next few weeks. Definition of a Franchise in New York Section 608 of the New York code defines a franchise in New York as: 3. “Franchise” means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (a) A franchisee

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