Franchise Agreements: Typical Structure

Over the past fifteen to twenty years, the franchise agreements have grown tremendously in complexity and size. They also tend to be more and more favorable toward the franchisor. Therefore, if you are a potential franchisee, you must read the franchise agreement very carefully to make sure that you fully understand what the agreement is saying. While it is imperative to hire a business attorney to advise you before you sign the agreement, this essay will sketch the typical structure of most franchise agreements in order for you to be able to better navigate your franchise contract.

1. Recitals. The recital provisions usually attempt to describe the franchisor’s system, its potential to contribute a great variety of proprietary information, and the reputation of the franchisor in the industry. Be careful: these provisions are generally not repeated as commitments of the franchisor and are typically disclaimed later in the franchise agreement (otherwise, the franchisee may have a breach of contract claim later).

2. Term of the Franchise and Exclusive Territory (if any). This part of the franchise agreement describes the longevity of the franchise agreement, whether any renewals are available, and what territory is granted exclusively to the franchisee against the same-brand competition.

3. Payment Obligations. Most of the agreements set out the payment obligations of the franchisee separately, while others merge this part of the contract with the rest of the franchisee’s duties.

4. Franchisor’s Duties. This part of the franchise agreement describes the franchisor’s duties toward the franchisee. Usually, however, these obligations are riddled with exceptions and references to the franchisor’s discretion. For examples, phrases such as “in its discretion” or “upon written request” are very common. Be careful: this part of the franchise contract may actually be used to impose obligation on the franchisee. Your attorney needs to review this section of the agreement very closely.

5. Franchisee’s Duties. The provisions regarding franchisee’s obligations may be especially numerous. Many modern franchise agreements may contain a very detailed list of duties imposed on the franchisee, and incorporate by reference the entire content of additional manuals and “any subsequent changes and additions thereto.” Additional covenants in separate articles may also be included in the franchise agreements.

6. Transfer, Assignment, and Termination. This part of the franchise contract sets forth how the franchisee may transfer (including through death, incapacitation, and sale) the franchise to another party. A right of first refusal in favor of the franchisor is often included. Also, be on the lookout for additional substantial fees paid by the franchisee to the franchisor in case of a transfer.

7. Miscellaneous: Choice of Law/Forum, Dispute Resolution, Disclaimers, Indemnification and Exculpatory Clauses. This part of the franchise agreement usually contains a mandatory arbitration clause and unfavorable choice of law provisions which may attempt to deprive the franchisee of the existing statutory protections. Here, you will also find various disclaimers and the indemnification requirements. Finally, various “no representation”and “no reliance” clauses (admitted by the franchisee upon execution of the franchise contract) are often included here. Despite the extreme pro-franchisor bias of many of these provisions, state and federal courts have a tendency to enforce them. Therefore, you must study these provisions with your attorney in order to make sure you understand what types of claims against the franchisor you are giving up by signing this agreement.

A typical franchise agreement is about 40-50 pages of dense legal language. Usually, it contains more information in addition to what is described above. Some agreements do not follow the above-described structure at all, but, rather, adopt their own format which may divide, omit or merge the sections described above into more or fewer articles and sub-sections. Therefore, it is highly advisable to retain services of a franchise attorney to review your franchise agreement to make sure you understand all of the provisions of this contract.

Sherayzen Law Office can help you review and analyze your franchise agreement so that you can understand your rights and obligations before you sign the contract.

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Business Litigation: Definition

While its definition varies, most attorneys would agree that “business litigation” is a complex area of law which includes a variety of contractual and tort claims. Examples of such claims include but not limited to: breach of contract, fraud, tortious interference with contract, breach of fiduciary duty, infringement of intellectual property rights, and unfair competition. Often, when these types of business disputes arise, the parties are unable to resolve them through negotiation or arbitration proceedings. In these cases, business litigation can be used as a way to resolve the disputes.

Business litigation is not limited exclusively to businesses suing other businesses. In certain cases (such copyright and trademark violations), individuals may asset claims against businesses and vice-versa.

Corporate litigation constitutes an important part of business litigation. Corporate disputes often arise as a result of a breach of fiduciary duty. For example, shareholders in a closely-held corporation may recover against a corporate director if he breaches his fiduciary obligations.

Commercial insurance litigation is another frequent source of business litigation. For example, where a commercial insurance company undervalues or denies a fair claim, then the victimized business may sue to recover the amount it believes it is entitled to. Often, these situation deal with contract litigation where an insurance company relies on a particular wording in the contract to avoid fully paying an otherwise legitimate claim.

These are just some of the countless areas in which a business may have a need for a Minnesota business litigation lawyer to resolve a dispute against another business. A good Minneapolis business litigation attorney or a St. Paul business litigation lawyer can be invaluable in protecting your rights and your company’s business interests.

Sherayzen Law Office can help you deal with a business litigation claim, whether defending against another business or enforcing your business rights against other parties.

If you or your company is in need of representation in a business litigation matter, please call NOW to discuss your case with a business litigation lawyer!

IRS Statute of Limitations: Tax Collections

The statute of limitations limits the time for the IRS tax collection activities. Generally, there is a ten-year statute of limitations for the IRS collection of owed taxes. Thus, for assessments of tax or levy made after November 5, 1990, the IRS cannot collect or levy any tax ten years after the date of assessment of tax or levy. See 26 U.S.C. §6502(a)(1). Court proceedings must also be started by the IRS within the 10 year statute of limitations. Treas. Reg. Section 301.6502-1(a)(1).

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax six years after the date of assessment of tax or levy. See 26 U.S.C. §6501(e). However, if the six-year period ends after November 5, 1990, the statute of limitations is extended to ten years. Hence, in order to come under the six-year statute of limitations, the six-year period must end prior to November 5, 1990.

The ten-year statute of limitations can be extended by agreement between the taxpayer and the IRS, provided that the agreement is made prior to the expiration of the ten-year period. See 26 U.S.C. §6501(c)(4).

Thus, in figuring out the applicable statute of limitations, you must understand: the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Sherayzen Law Office can help you understand all of these issues and represent your interests in your negotiations with the IRS.

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Amending Tax Returns

Whether you need to amend your previously-filed tax return depends on your particular situation. In some situations, such as simple math errors, the IRS will correct the return for you. In other situations, however, you should file an amended tax return. The most common situations occur when you need to change your: filing status, dependents, income, deductions and credits.

If you are eligible to claim the first-time homebuyer credit for a qualified 2010 home purchase, you may wish to elect to amend your 2009 return in order to claim the credit this year without waiting for the next year to file the 2010 tax return.

You should use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. Be sure to check the box for the year of the return you are amending on the Form 1040X, Line B, or write in the year if you are amending a return filed in year prior to those listed on the form. If you are amending more than one tax return, you will need to prepare a 1040X for each return If the changes involve other schedules or forms, attach them to the Form 1040X.

If you are filing to claim an additional refund, you should wait until you have received your original refund before filing Form 1040X. However, if you owe additional tax for 2009, the opposite is true – you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Whether you are able to claim a refund will depend on the applicable statute of limitations, but generally, you have three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.

Sherayzen Law Office can help you determine whether you need to amend your tax return and help you prepare Form 1040X with all attachments.

Call NOW Sherayzen Law Office to discuss your tax situation with a tax attorney!

IRS Statute of Limitations: Taxpayer Audit

The tax statute of limitations limits the time during which an action can be brought by the IRS for an audit. The general rule is that IRS has three years from the filing date to audit a tax return. 26 U.S.C. §6501(a) and Treas. Reg. §301.6501(a)-1(a). Similarly, under Treas. Reg. 301.6501(a)-1(b) no proceeding in court by the IRS without assessment for the collection of any tax can begin after the expiration of three years.

However, if the taxpayer fails to report on his tax return an amount in excess of 25% of the gross income (as stated on the filed tax return), then the statute of limitations is increased to six years. 26 U.S.C. §6501(e).

If the tax return was prepared by the IRS under the authority of section 26 U.S.C. §6020(b) the statute of limitations simply does not apply. See 26 U.S.C. §6501(b)(3). Likewise, the statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. See 26 U.S.C. §6501(c)(1).

This essay states only the general rules. The statute spells out numerous exceptions to these general rules. Therefore, even though most of the situations are resolved by the general rule, it is best to consult your tax attorney to see if your situation fits into one of the exceptions.

Call Sherayzen Law Office  to discuss your tax situation with a tax attorney!