What You Need to Know Before Purchasing a Franchise

  1. Why a consider purchasing a franchise
    1. Proven business model
    2. Market recognition
    3. Advertising strength
    4. Might be easier to finance


  1. A “Franchise” is an oral or written agreement, either express or implied, which provides all of the following[1]:
    1. Grants the right to distribute goods or provide services under a marketing plan prescribed or suggested in substantial part by the franchisor.
    2. Requires payment of a franchise fee to a franchisor or its Affiliate.
    3. Allows the franchise business to be substantially associated with a trademark, service mark, trade name, logotype, advertisement, or other commercial symbol of or designating the franchisor or its affiliate.


  • What a franchise is not
    1. A guaranty of success
    2. A job
    3. A recipe (but it might include recipes)
  1. Due diligence on Franchisor
    1. Check their financial capability
    2. Check their reputation
      1. Ask other current franchisees
      2. Ask business rating services like Better Business Bureau and/or Iowa Business and Industry
  • Ask FORMER franchisees
  1. Visit their facility and meet key individuals
  2. Check their longevity (how long have they been doing business)


  1. Due diligence on the FRANCHISEE—YOU (the buyer)
    1. Are you passionate about the business/industry
    2. Do you have experience
    3. Do you have the capacity to run the business
      1. Managerial capacity
      2. Available workforce
  • Financial capability
    1. Pay all the costs of the franchise
    2. Six month personal reserve


  1. Why is it better to buy a franchise than to start your own business
    1. What “power” does the franchise mark have in your market/in its industry
    2. What services does the franchisor offer
      1. Training
      2. Marketing
  • Operating plans


  • Franchise documents
    1. Governed by Federal law[2]
    2. Primary document is the Uniform Franchise Offering Circular
    3. What to look for in the franchise documents
      1. Pre-opening expenses
        1. Purchase of the franchise (normally $25,000 to $50,000)
        2. Franchisee training costs
        3. Site selection fees
        4. Signs/Displays/Trade dress
        5. Initial inventory
        6. Uniforms
      2. Rates and computations of the franchise fees
  • Required purchases from the franchisor
  1. Advertising requirements
  2. Insurance requirements
  3. Territory
    1. Exclusivity/Non-exclusivity
    2. National accounts
  • Termination
    1. Sales requirements
    2. Rights to transfer franchise
      1. Franchisor
        1. Commonly based on non-payment of fees
        2. Termination fee
      2. Franchisee- normally has no rights to terminate
  • Personal guarantees

[1] Iowa Code 523H.1(3)

[2] 16 Code of Federal Regulations Parts 436 and 437

Business Divorces

  1. UntitledBusiness is like a marriage
    • In the beginning everything is rosy and the business will be successful and the co-ownership will last forever.
    • More of your waking hours are spent in the business than anywhere else.
    • Problems occur:
      • Between co-owners
      • With the operation of the business
  2.  What’s the issue
    • Termination of employment does not terminate ownership
    • The ownership interest is property of the owner- one owner cannot simply take from another.
    • It’s going to cost money
      • To buy the interests of the departing owner
      • To negotiate
      • To Exercise legal rights
  3. The hard way- Statutory provisions
    •  Corporations
      • The remedy is actually court ordered dissolution of the company
      • One or more of the following must be present[1]:
        • Deadlock of Directors and shareholders injurious to the conduct of the business (business paralysis)
        • Directors or those in control acting in a way which is:
          • Illegal
          • Oppressive; OR
          • Fraudulent
      • Assets being wasted or Misapplied[2]
    • Dissolution presents its own set of problems:
      • In a dissolution property remaining after payments to creditors (including taxes) are to be distributed among shareholders pro-rata[3]
      • Many assets may not be divisible:
        • Name, phone number website
        • Assets may be had to value
        • Intangibles like relationships
    • Limited Liability Companies
      • The remedy may be dissolution of the company BUT for an LLC a judge may order a remedy OTHER THAN dissolution[4]
      • One or more of the following must be present[5]:
        • It is not reasonably practicable to carry on the business
        • The Managers/members have acted in a way which is:
          • Illegal
          • Oppressive; OR
          • Fraudulent
      • Dissolution of an LLC presents problems similar to those of a corporation[6]
  4. Easy(er) Way- Buy/Sell Agreement
    • Like a Pre-nuptial Agreement
    • Avoids dissolution and problems with distribution of the assets of the business to the owners
    • Key Benefits
      • Flexible
        • Terms can be changeable at any time and from time to time by agreement
        • Often purchase price is based on appraisal or a stipulated formula
        • Payment amounts and terms can be tailored to meet the triggering event (Example different terms if co-owner simply quits than if they are fired)
        • Can be used to eliminate deadlock: one simply buys out the other.
      • Determined at a time when parties are not angry/under stress
      • Objectively “reasonable” since they are established by agreement-YOU NEVER KNOW IF YOU WILL BE A BUYER OR A SELLER so you better do the right thing.
    •  Drawbacks
      • They can still be difficult and expensive to enforce
      • If ownership is not 50/50 they could work to the disadvantage of the minority owner
      • Recommended Formula for provisions on buyouts not caused by death, disability or termination of employment- Russian Roulette (one offers a price for the shares of the other and the offeree can buy the offeror’s shares at that price).

Contact the Kreamer Law Firm, P.C. for assistance with a “business divorce”, a buy/sell agreement, or any other legal matter regarding your business at 515-727-0900 or info@Kreamerlaw.com

[1] Iowa Code Section 490.1430(1)

[2] Also failing to elect successor directors

[3] Iowa Code 490.1405 (generally) and 490.1405(d) (particularly)

[4] Iowa Code 489.701(2)

[5] Iowa Code 489.701(1). NOTE: this section also sates additional grounds for judicial intervention.

[6] Iowa Code 489.702(2)

What Do Your Internal Corporate Documents Really Mean?


Tom Kutz and I were back on Insight on Business – The News Hour with Michael Libbie again to answer the important business questions that everyone should know. Between bylaws and minutes, do you know what your internal corporate documents really mean for you and your business? Click the link to listen to the podcast!

Life or Death Decisions: Power of Attorney for Health Care v. Living Will


Do you know the difference between a Living Will and a Power of Attorney for Health Care? The difference is extremely important to know when it comes to your estate plan and making sure you’re putting power in the right hands.

There are two fundamental differences between a Power of Attorney for Health Care[1] and a Living Will[2]:

  1. The Decision Maker
  • In a Power of Attorney for health care, YOU APPOINT someone you know to make health care decisions for you.
  • In a Living Will the decision maker is your attending physician (who you may or may not know).
  1. The Subject Matter
  • A Power of Attorney for Health Care authorizes the holder to make decisions regarding your medical care, treatment, service, or procedure to maintain, diagnose, or treat an individual’s physical or mental condition; including the use or withdrawal of life sustaining procedures.
  • A Living Will authorizes an attending physician to withhold life sustaining procedures if you have an incurable or irreversible condition that will result either in death within a relatively short period of time or a state of permanent unconsciousness from which, to a reasonable degree of medical certainty(as confirmed by another attending physician), there can be no recovery.
  • The authority of the appointee of a Power of Attorney for Health Care is much more broad than a living will, but includes the same authority as that granted to the attending physician in a living will.

At Kreamer Law Firm, P.C., we recommend that our clients have a Power of Attorney for Health Care, but NOT a living will. This is because:

  • The overlap of authority between the two holders could create a conflict between the person you appoint and your attending physician. By having only one document you have only one decision maker.
  • The best person to make these decisions is someone you appoint (and therefore trust) to make these decisions, since you may not even know who is your attending physician at the time a decision is necessary.
  • Although they make these decisions all the time, we feel that this places an undue burden on the attending physician, who is tasked with providing you the best health care possible in EVERY situation.

Contact the Kreamer Law Firm, P.C. at 515-727-0900 or sikjdcpa@kreamerlaw.com if we can be of assistance in your estate planning.

[1] Iowa Code Section 144A

[2] Iowa Code Section 144B

Yes, Lawyers CAN Have Fun, Too!

Last night, Kreamer Law Firm, P.C. sponsored the beer serving tent for the Historic Valley Junctions event/concert, Music in the Junction. And let me tell you, it was a great night! The weather was perfect, the music was great, and Tom Kutz and I had a blast handing out koozies and beers while showing the attendees that lawyers can have fun, too.


Secure Transactions and Blanket Liens

At the I-NEDA annual conference Sam Kreamer discussed some of the dangers that occur when blanket liens are involved in transactions. This issue is by no means an easy topic, and that’s why we’re here to help. Click the link to download the PowerPoint used that shows examples of the step by step procedures for these transactions. If you have any questions, feel free to contact us at 515-727-0900.