Month: October 2017

Franchise2

How Does Franchising Differ From Licensing?

When starting a new business in South Florida, you may be attracted to a licensing or franchising opportunity. Although these terms are often used interchangeably, they represent distinct legal concepts, and while franchising generally involves licensing, the reverse is not true.

What Does a License Do?

Licensing typically involves one person or business entity (the licensor) granting another party (the licensee) the right to use the licensor’s intellectual property in a limited capacity. A common example of licensing is a trademark owner permitting a retailer to sell goods carrying the trademark. In exchange, the trademark owner receives royalty payments, usually a percentage of sales.

Licenses may be exclusive or non-exclusive. With an exclusive license, the licensee has sole commercial rights to use the trademark. Conversely, with a non-exclusive license, the licensor is free to enter into multiple licensing agreements with different third parties.

If you are looking to enter into a licensing agreement, whether as the licensor or licensee, it is important that both parties understand the scope of the license. If the licensee mistakenly assumes that he or she has an exclusive license, it can lead to conflict down the line, and potentially litigation. The licensor should ensure they are adequately compensated for exclusivity rights.

What Is a Franchise?

As mentioned above, a franchise involves licensing. But it also implies a more extensive business relationship. In fact, a franchise has a specific definition under federal law. Federal Trade Commission regulations define a franchise as any business arrangement that satisfies the following three conditions:

  1. The franchisor agrees to “provide a trademark or other symbol” for the use of the franchisee;
  2. The franchisor promises to “exercise significant control or provide significant assistance in the operation” of the franchisee’s business; and
  3. The franchisor requires a “minimum payment of at least $500” from the franchisee during the first 6 months of the operation.

The term “significant control” in condition #2 can often cause confusion. According to the FTC, “the control or assistance must relate to the franchisee’s overall method of operation – not a small part of the franchisee’s business.” Therefore a royalty agreement to sell or promote trademarked products would not, on its own, create a franchise relationship. However, if the trademark holder controls any or all of the following areas of the licensee’s business, that would likely constitute a franchise:

  • The locations where the franchisee may operate;
  • The site and design of the franchisee’s locations;
  • The franchisee’s hours of operation; or
  • The franchisee’s production techniques, accounting practices, and personnel policies.

The FTC requires all franchisors to provide potential franchisees with a detailed list of disclosures regarding the terms of the franchise. As a franchisee, you may be entitled to monetary damages if a franchisor fails to comply with this rule. The State of Florida also has its own regulations governing franchises and business opportunities that apply to certain contracts.

SimplyLegal Can Help You With Franchising & Licensing

If you are contemplating licensing a franchise agreement, it is important to get expert advice from a qualified Miami business lawyer. Remember, these are business contracts that can significantly impact your legal rights. The attorneys at SimplyLegal can help. Call us today at (305) 858-6208 to schedule a complimentary consultation.

Source:

ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule

Business5

Do I Need an Operating Agreement for My Florida Limited Liability Company?

Starting a Florida limited liability company (LLC) is a major undertaking, especially if it involves more than one person. While not technically required by law, it is always a good idea for multi-member LLCs to execute an operating agreement as part of the business registration process. Similar to a partnership agreement, an operating agreement is a binding legal contract that spells out the rights and responsibilities of each member of the LLC.

What Operating Agreements Can and Cannot Do

A “member” of an LLC is somewhat analogous to a stockholder in a corporation. But one of the key differences is that while stockholders are not presumed to be responsible for the day-to-day management of a corporation (that is the role of the board of directors) LLCs are treated as “member-managed” entities. This means that by default, each member has a say in the management of the business proportional to his or her percentage of ownership.

This is not an ideal arrangement for many Florida LLCs. By adopting an operating agreement, the members can elect to have a “manager-managed” LLC, where one or more individuals who are not necessarily members have exclusive control of the business. This must be stated expressly; under the language of Florida’s current LLC laws, it cannot be an implied or oral understanding.

That said, Florida law does recognize oral or implied operating agreements. But to avoid unnecessary ambiguity and confusion not to mention potential litigation it is always best to have a written agreement. While there is no one-size-fits-all approach to operating agreements, at a minimum such contracts should address the following subjects:

  • the percentage of each member’s ownership interest in the LLC;
  • the voting rights of each member;
  • each member’s share of any profits or losses incurred by the business;
  • the time, place, and manner of any mandatory membership meetings;
  • in the case of a manager-managed LLC, the process for electing the manager(s), and that person or persons’ specific duties and powers;
  • the process for each member to sell or otherwise dispose of their interest in the LLC; and
  • procedures for dissolving the LLC and winding up its affairs.

While LLCs have wide discretion to tailor an operating agreement to fit their unique situation, there are certain things that cannot be done legally. For instance, Florida does not allow an operating agreement to provide absolute indemnification for a manager or member who acts in “bad faith” or intentionally breaks the law. Nor can the operating agreement “eliminate” the duty that all members have to engage in “good faith and fair dealing” with one another, although the members may agree how to determine if such standards have not been met (within reason).

Simply Legal Can Help Get Your LLC Up and Running

These are just a few of the issues involved when putting together an LLC operating agreement. Our legal team can assist you in every step of starting a new LLC, from filing articles of organization with the state to preparing an operating agreement, as well as providing ongoing general counsel services for your business. Call Simply Legal today at (305) 858-6208 to schedule a complimentary consultation with one of our attorneys.

Resource:

leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0605/0605.html

HouseGavel

What Do You Need to Know Before Closing on Your House?

Buying your first home is an important milestone for many Miami-area residents. But unlike renting an apartment, where you typically only need to worry about a lease, taking out a mortgage to purchase a home is significantly more complicated. During the closing you will be required to review and sign a number of forms, including a promissory note and the mortgage itself, which may be overwhelming for a first-time buyer.

You may be confused as to what exactly you agreed to (or thought you agreed to) when initially applying for your mortgage. In some cases the documents that you receive at closing may not match what you were previously told. To help avoid such situations and to prevent lenders from taking advantage of inexperienced borrowers, federal law requires a Closing Disclosure.

What is a Closing Disclosure?

The Closing Disclosure is a relatively straightforward five-page form created by the U.S. Consumer Financial Protection Bureau (CFPB) in 2015. It replaced an earlier form, known as the HUD-1 Settlement Statement, that applied to mortgage loans issued prior to October 2015. CFPB regulations require your mortgage lender to provide a Closing Disclosure at least three business days before the closing date. This gives the borrower time to review the information and ensure the proposed terms of the mortgage are acceptable. In particular, the borrower should take note of any differences between the terms specified on the Closing Disclosure and the Loan Estimate, which is a separate document also mandated by the CFPB.

So what exactly does the Closing Disclosure disclose? For starters, it tells the borrower the amount of the loan and the interest rate, as well as the monthly payment. Some mortgages also require an “escrow” or “impound” account for items like homeowner’s insurance, property taxes, and homeowners’ association dues. The Closing Disclosure must include an estimate of these additional costs and indicate whether it will be paid thru an escrow account.

The Closing Disclosure will also identifies the actual closing costs, i.e. how much cash you will need to complete the sale on the closing date. Closing costs often include third-party services required by the mortgage lender as a condition of the loan, such as appraisal fees and the cost of running a credit report. There are other closing costs that may be paid by the seller, which should also be itemized on the Closing Disclosure.

Finally, the Closing Disclosure will inform the borrower of the consequences if a monthly mortgage payment is not paid on time. Most lenders will charge a late payment fee. Some may accept partial monthly payments. Conversely, the lender may assess an additional fee if the borrower wants to pay off the entire mortgage early. The Closing Disclosure must inform the borrower of these potential costs.

Simply Legal Can Help With Your Due Diligence

There is often a mad dash to complete a home sale. Although you may be receiving pressure from your real estate brokers to close and despite your family members asking, “When do you move in?”, you should be sure to avoid overlooking any formalities before signing on the dotted line as purchasing a home is a major commitment of your time and money. You need to proceed carefully and exercise due diligence at every stage of the transaction. Our experienced Miami real estate lawyer can help look out for your best interests. Call the attorneys at Simply Legal today at (305) 858-6208 to schedule a complimentary consultation to discuss your property, next purchase, or sale.

Resource:

consumerfinance.gov/owning-a-home/closing-disclosure/