Franchise and Non-Compete Clause

[Mikieveee]

I am in Texas.

If I completely own a franchised business, but am unhappy with the franchise (primarily fees) can I allow the franchise to expire, then set up a business at the same location under a different name/branding with a new completely owned LLC? What if I own the LLC with the franchise and my wife owns the LLC with the rebranded business?

I.e. I own 100% of Business LLC which is a franchisee of Franchise. Business LLC's contract with Franchise expires and Non-Compete comes in to effect. Can Other Business LLC which either I or my wife owns 100% open a non-franchise competing business at the same location with a new name?

 

[LdiJ]

I am in Texas.

If I completely own a franchised business, but am unhappy with the franchise (primarily fees) can I allow the franchise to expire, then set up a business at the same location under a different name/branding with a new completely owned LLC? What if I own the LLC with the franchise and my wife owns the LLC with the rebranded business?

I.e. I own 100% of Business LLC which is a franchisee of Franchise. Business LLC's contract with Franchise expires and Non-Compete comes in to effect. Can Other Business LLC which either I or my wife owns 100% open a non-franchise competing business at the same location with a new name?

You are going to need to run this idea by an attorney. Someone would have to know the nitty gritty details of the business in order to be able to give you good advice. However, I can tell you that if you, for example, currently have a McDonald's franchise and you let the franchise lapse and open a new burger joint, with the same building exterior and interior, and the substantially same menu, you are probably going to have a serious problem. However, if you gave the building a new paint job with totally different colors, remodeled the interior and changed the menu to Mexican food, you wouldn't have a problem at all.

There is also the financial and business aspect of what you are considering. Will you get the same amount of business if you are no longer a franchise? What will it cost you to change things enough to avoid problems? Is there anything in your franchisee contract that would prohibit even a totally different business in the same building? Etc.

It all depends on the details.

 

[Taxing Matters]

I am in Texas.

If I completely own a franchised business, but am unhappy with the franchise (primarily fees) can I allow the franchise to expire, then set up a business at the same location under a different name/branding with a new completely owned LLC? What if I own the LLC with the franchise and my wife owns the LLC with the rebranded business?

Take the franchise agreement and your present lease (if you are renting the space) to a business attorney for advice. The details of those contracts are immensely important. For example, in pretty much every franchise agreement I've read the agreement obligates not just the business entity (LLC, LLP, corporation, etc) operating the franchise but also the owners of the business entity. Thus, you might be bound by non compete agreement personally. Indeed, if the attorney for the franchisor who wrote the contract was at all good the agreement would surely have such a provision in it. It would also matter what the contract defines as a competing business, too. And your lease may be a factor, too, as you may need the landlord's permission to do some or all of what you want to do with your space.

 

[adjusterjack]

If I completely own a franchised business

If you own a franchised business I suggest you read your franchise contracts carefully and thoroughly because it will have the answers to your questions.

 

[xylene]

You are not the first franchisee to consider / do this and get used even if you are in the right.

Something to consider, and those hefty fees pay for deep pockets to litigate...

 

[PayrollHRGuy]

If the lawyer that created the franchise agreement didn't include language to stop exactly what you want to do he is an idiot.