Contact Us

Oregon Office:

Douglas D, Smith

PO Box 1034 

Sherwood, Oregon 97140-1034

Phone: (503) 840-0000

 

Utah Offices:

Bradley D. Smith

FranchiseSmith Utah, LLC

5508 West Kensington Circle

Highland, Utah 84003

Phone: (801) 615-1564

 

Douglas D. Smith

Franchise Smith, LLC

201 Red Pine Drive #4

Alpine, Utah 84004-5618

Phone: (503) 840-0000

 

Please understand that the

information contained in

this website is provided

for general information. It

may or may not reflect

the most current legal

developments and new 

business practices. It is

not provided in the course

of the attorney-client

relationship and is not

intended to be legal

advice or a substitute

for obtaining legal advice

from an experienced

franchise attorney 

related to your specific

needs and circumstances.

Business Entity Formations

We create business entities, such as limited liability companies and corporations, for our franchise and business clients. Operating your franchise system or business through a business entity can help protect your personal assets from claims brought by third parties. Operating through a business entity may also have tax advantages.
 
We advise our clients to talk to an accountant about the type of business entity that should be formed (e.g. LLC versus corporation) based on each client's specific financial and tax situation. We then prepare all documents to formally organize the company. Business entity organizational documents may include:
 

  • LLC Articles of Organization for an LLC or Articles of Incorporation for a corporation.   This document is submitted to state authorities to officially form the company.
  • Operating Agreement for an LLC or Bylaws for a corporation.  This document establishes the structure of the company in regard to ownership, management, transfers of ownership interests, withdrawal of an owner, dissolution of the entity, and other issues.
  • Other documents as needed (such as initial organizational resolutions or meeting minutes, stock subscription agreements, stock certificates, etc.).
BASIC GUIDELINES FOR STARTING A NEW BUSINESS

Business Entity

Form a business entity. Operating your business through a business entity can help protect you against personal liability to third parties. Operating a business through a business entity may also have tax advantages. We recommend that you talk to an accountant about the type of business entity that is right for you (e.g. LLC versus corporation) based on your specific business, financial, and tax situation.
 
As your franchise attorney, we can assist you with the formation of the entity and preparation of business organizational documents. Your accountant should review and approve the business entity formation and operational documents that we prepare for you before you sign them. You should talk to your accountant about obtaining a federal Employer Identification Number (EIN), state business identification number, and all necessary tax filings, such as for an S-Corporation.
 
In the franchise purchase context, usually you should not form the business entity until the franchisor has approved of you as a franchise purchaser. Also, you should wait to form the entity until after you have completed enough due diligence that you are comfortable moving forward with the purchase of the franchise. You should form the business entity before you sign the franchise agreement.
 
Before you sign any franchise agreements or pay any money, you should review the Franchise Disclosure Document with a franchise lawyer.

Business Plan

Next, create a business plan. A business plan precisely defines your business, identifies your goals, and serves as your company's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It also includes financial planning spreadsheets and plans to help you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.
 
The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives. For more information on forming a business plan, see the United States Small Business Administration website at www.sba.gov/starting_business/planning/basic.html.

Bank Account and Merchant Accounts

Find a bank and set up an account for your business. Order checks and deposit tickets. You may want to ask that your bank statements be cut off at the end of each month.
 
You may need to establish merchant accounts with Visa, Mastercard, Discover, American Express, and/or other processors. They will need to know your checking account number so that they can direct deposit your settlements. You may want to ask that they settle to your bank daily and that they cut off your statement at the end of each month. Shop around so that you can find a processor that offers a low discount rate. You may need to get a processing terminal (if you are purchasing an existing business, you may need to ensure the return of the existing terminal).

Licenses

Obtain relevant licenses and permits. Contact the offices of the states, counties and cities in which you will be doing business to find out which licenses, permits and certificates apply to your business. For example, the following types of licenses and permits may be needed: business, health, liquor, special tax stamp, alarm permit, sign permit, etc.
 
In Oregon, visit the Oregon Secretary of State Corporation Division website www.filinginoregon.com for more information about starting a new business, including information about business licenses and permits. (Go to the site's home page and click on Business Wizard.)

In Utah, visit the Utah Department of Commerce website http://www.commerce.utah.gov and http://corporations.utah.gov

Zoning Requirements

Ensure that the location you choose for your business is properly zoned for your business activity. Other factors to consider include regulations on business signs and parking at the location.
 
If you are planning to operate a business from your home, determine if there are restrictions on home-based businesses in your area. Your city or county planning offices will be able to provide you with this information.

Lease Agreement

Obtain signed lease agreement or assignment of lease agreement for the business location, if applicable.
 
Purchase and Sale Documents; Financial Information
 
You may need to provide copies of purchase/sales documents and personal financial information to the franchisor or landlord, if applicable.

Payroll

You may want to hire a bookkeeper or payroll service to process payroll. They can process payroll, including issuing checks, making tax deposits and furnishing payroll reports. They can file quarterly and annual reports to state and federal taxing authorities. They can issue year-end W2’s and other related forms. They will need your federal and state employer identification numbers.

Accounting and Records System

Establish systems for preparing and closing daily paperwork; issuing checks; forwarding information to your bookkeeper in a timely manner; furnishing charts of accounts to bookkeeper; monitoring cash flow; preparing and completing financial statements; and reviewing financial statements.

Insurance

Find insurance coverage that meets the needs of your business (and that meets the franchisor’s and landlord’s requirements, if applicable). You may want to shop around to find reasonable rates.

Equipment, Supplies, Inventory, Advertising

Purchase or lease necessary equipment, supplies and inventory (including product, cash on hand, and other inventory). Set up accounts with relevant product and service vendors for ongoing product and service needs for your business (including supplies, inventory and advertising).
 
If you are purchasing an existing business, you may want to obtain a supplier list from the existing owner for product and service vendors in the local area. You may need to ensure the return of any equipment leased by the existing owner. You may also need to ensure that existing supplier contracts are canceled or made a new under your name.

Maintenance Contracts

You may need to set up some of the following types of maintenance contracts: janitorial; landscaping, window washing, fire extinguisher maintenance; security alarm; linen service; music service; office supply vendors; vending machines; pay phones; yellow page and related advertising; etc.
 
If you are purchasing an existing business, you may want to obtain a vendor list from the existing owner for maintenance service vendors in the local area. You may need to ensure that pre-existing maintenance contracts are canceled or made anew under your name.

Utilities

Set up utility services such as water, gas, electricity, garbage collection, telephone service (including long distance), etc.
 
If you are purchasing an existing business, you and the seller should notify all utility providers of the change of ownership and set a day for meters to be read for closing bills.

Safety

You may need to perform a thorough cleaning of the business premises. Ensure compliance with health and safety standards set by the U.S. Department of Labor Occupational Safety and Health Administration (OSHA). See www.osha.gov for more information.

Office Set Up

Make sure necessary manuals and files are in place in your business office.

Employees

Obtain or create employment application forms, employee confidentiality forms and other relevant forms. Establish a system to ensure that employees complete all relevant forms.
 
Obtain or create employee-training manuals and distribute the manuals to employees during training. You should consult an experienced and competent local employment lawyer or reputable human resource company to advise you in the creation and maintenance of employee manuals and handbooks. In addition to addressing everyday business operations standards and requirements, these can relate to the hiring, firing, discipline, and supervision of employees and their managers.

 In today's franchise world, there are serious and ever-growing risks related to the potential of joint-employer liability between a franchisor and a franchisee related to the franchisee's employees. To limit these risks we suggest the following to franchisors:

  1. Franchisors should not supply franchisees with a sample or standard employee handbook. While the franchise operations manual can contain all the rules and requirements for a franchisee to operate the franchised business, a franchisor should never direct or get involved in the hiring, firing, discipline, supervision, wages, work schedules, and working conditions of a franchisee's employees. And, the franchise operations manual should be written to "sound like" general standards and requirements rules rather than like an employee handbook.
  2. Franchisors help their franchisees understand and handle the franchise business. They let the franchisee handle the employees. For example, a franchisor can set minimum education, experience, and capabilities for a franchisee’s employees by job title, but the franchisee should always be solely responsible to train and verify that individual employees fulfill the franchise standards. If the franchisor notices a defect or problem - inform the franchisee, then let the franchisee inform and handle the involved employees and workplace processes. 
  3. A wise franchise attorney will counsel a franchisor to never create a system-wide site for job posting and hiring. The franchisor can do so for its company-owed operations and the franchisees can do so individually or through a franchisee association for the franchised sites.
  4. Since costs and revenues determine profit, and given that employee wages are a major component of a franchisee's costs, it is better for a franchisor to limit price controls by letting franchisees set their own prices (while promoting pricing through "at participating locations" advertising when appropriate), refrain from setting required minimum inventory levels, and give franchisees choices in employee uniforms and 
  5. Avoid being named as an "additional named insured" on a franchisee's employment insurance policies.
  6. Consult with an experienced franchise lawyer first and frequently. 

Post Office

If you are purchasing an existing business, you may want to notify the local post office of any change of name.

Security

If you are purchasing an existing business, you may want to change door locks and security alarm codes.

Consent of Third Parties

If you are purchasing an existing business, make sure that the consent of relevant third parties has been obtained, For example, the sale of franchise assets and the transfer to you of rights and obligation under franchise agreements, leases, and other agreements may require the approval of other parties to the agreements, such as the franchisor and lessors.

Business Sales and Purchases

We provide legal services to buyers and sellers of businesses throughout the acquisition and sales processes. We create and review purchase and sale documents, including, for example:
 

  • Letters of Intent or Earnest Money Agreements
  • Final Purchase and Sale Contracts
  • Promissory Notes
  • Covenants not to Compete
  • Ongoing Management, Consulting or Training Contracts
  • Uniform Commercial Code filings
  • We endeavor to give our clients simple and concise explanations of legal and practical aspects of the business transaction process.

Get a Good Franchise Lawyer

An experienced franchise attorney can help you with all of these issues and many more.
 
Call us today at (503) 840-0000 or (801) 615-1564 or contact us online.