Business Case Study; Risks of Franchise Litigation due to Disclosure Documents Updates

Business Case Study; Risks of Franchise Litigation due to Disclosure Documents Updates

Most business executives know the importance for updating disclosure documents and investor prospectuses. Failure to keep updated documents can and often will lead to litigation anytime an investor loses money unexpectedly. In franchising if a franchisee fails, files bankruptcy or is terminated for cause most franchisors realize that this can also trigger litigation or legal issues, even if they are settled in arbitration.

Generally in franchising this is a long drawn out process and there are always two-sides to every story. Many of these cases are similar and franchisees know that they are often bound to binding arbitration and therefore will look for discrepancies, mistakes or even questionable issues with the disclosure documents given at the original time of the sale which may have been years the prior.

But no matter a franchisor must document everything, even footnote items, which are not easily understood in order to prevent future lawsuits. Of course I am not a lawyer and this is not legal advice, more of a case study of the reality of the franchising industry and need to update those UFOCs. Consider all this in 2006.

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