Why would the company want me to franchise? Would it be uncommon to ask for some sort of compensation in return for franchising?

The likely reason they became a franchisor was legal advice they needed to it and try to convert persons like you into the franchise program, thereby removing skeletons in their closet. If the lease is in your name, they can't do anything about that, until the lease comes up for renewal. You should have a franchise attorney review their FDD and advise you of the advantages and disadvantages. $5k is a very small franchise fee these days, but there are many other factors. Good luck, Kevin B. Murphy, B.S., M.B.A., J.D. Franchise Attorney & Franchise Expert Director of Operations - Mr. Franchise FRANCHISE FOUNDATIONS APC

I believe that Kevin Murphy's response included valuable information that you should consider and continuing on that premise you should know that you may have more negotiating power and more options than you realize. You mention the upfront franchise fee and that the fee is not a lot but there are many more important provisions that you need to evaluate in terms of the franchise agreement that you may eventually sign, i.e., royalty obligations, advertising fund obligations, territory restrictions, non-competes, etc... Again understand that you may have negotiating power to influence these important provisions.

Your question asks why your supplier-licensor would want you to franchise, but you are seemingly also looking for help resisting that request. I'll address each question in turn. Companies decide to franchise for many reasons. The basic strategy lets a company expand the use of its business model to a larger market without having to own all the sites and employ all the people. Ask yourself why McDonalds decided to sell franchises instead of opening only company-owned restaurants, and ask yourself how that has worked out for them. It seems this company has decided to go the franchise route and they should not be subject to criticism for doing that. Possibly they could expand without franchising by just reproducing the business model that you've been operating under. But creating more license and supply arrangements can end up looking to customers like a franchise relationship, and it could easily be found to violate state or federal franchise rules. Since they've decided to go the franchise route, there are probably legitimate business reasons why they want to "clean up" their system and eliminate outlets that also use their name under other kinds of arrangements. For example, your current arrangement might have different territory restrictions than they want to implement, or have other characteristics that would interfere with their desire to establish more system wide uniformity. What you can do to stop them from converting you is a separate question. It largely depends on the terms of your current agreement. If you feel strongly about keeping what you've got, you should consult a franchise lawyer. Possibly you have grounds to keep what you have, or possibly you can get them to make concessions if you agree to convert to their franchise model.

In addition to the many great answers provided by other responders, the supplier may want to have certainty that the location will continue to be used for sale of its products over many additional years. If you have a long-term lease for the location then the supplier has little leverage, other than refusing to continue to supply goods to you. If you are on a short term lease, then the supplier could try to "out bid" you for a new lease and then find someone else willing to be its franchisee. All of these points need to be weighed by an experience attorney in your state who is experienced with franchising relationships as well as real estate leasing issues.

As a number of my colleagues have said, they probably want you to buy a franchise because the arrangement may already be a franchise. This would raise legal issues for them that they want to clean up; you may have some leverage here. Get a franchise attorney!

My colleagues have all given you excellent advice. It's time to hire an experienced franchise attorney who will review the FDD, your lease and the specific facts, including the likely scenario your Franchisor has violated various federal and state franchise laws, and work to negotiate a mutually agreeable arrangement for you. You are in both a tough spot and a good spot so take advantage of the potential benefits. While it will cost you to hire an attorney AND pay the franchise fee, these investments are a small price to pay to protect your valuable business rights for many years to come. A good negotiating attorney might get the $5,000 completely waived for example, and you will have an ongoing contract requiring them to sell to you so there are definite benefits to the arrangement. I have had many clients in the same scenario where they were so called distributors with little rights, but in the law they were franchisees with many more rights but they were not documented properly by the Franchisor. This is not uncommon sine franchises are highly regulated and many suppliers are completely unaware of the laws until they talk to a franchise attorney and see how many laws they have broken and are required to get clean immediately. Believe me the legal fees you will pay an attorney to protect your rights are a drop in the bucket compared to the legal fees they are paying to become legal. You have a lot of clout.

I agree with my colleagues. Given that you are using the company's trade name, it is possible that the relationship you currently have in place is already a franchise and the company has recently figured that out in consultation with legal counsel (for more on "hidden franchises," see the link below), but it's equally possible that the company has recently decided that franchising makes more business sense for the organization moving forward. Unless you have laws in your home state that protect your current distributorship relationship, agreeing to the franchise arrangement may be your best option. That said, I agree with my colleagues that you probably have some leverage here that you may be able to use to negotiate a "better deal" with the franchisor. You should engage with legal counsel experienced in franchising to help you evaluate your options.

Franchising does not just include the fees. You need to speak to a business attorney regarding this question not an employment attorney. I will repost this for you under "franchising." in , hopefully you will get a better answer. I would consult with an attorney in Atlanta, as well. Best of luck to you.

Franchise agreements are always negotiable, and you need a good franchise attorney with substantial franchise and distributorship experience to represent you in these negotiations. Without a distributorship contract, you probably don't have any right to require them to continue selling to you - except that many states have distributorship laws which may extend your rights for a short period of time. You may also have some claims that your "distributorship" was an unintentional franchise and that by not complying with the franchise disclosure laws for all these years, the franchisor owes an obligation to you. It will take a detailed analysis of your specific situation by an experienced franchise and distribution attorney to advise you regarding what rights you have. If you are a top performer, you also have some bargaining power. Get a good franchise lawyer to represent you in the negotiations. Entering into a franchise agreement may ultimately be beneficial to you. Good luck.