We advise clients who either want to become a Hawaii franchisor or franchisee.
Hawaii Franchisee
For potential franchisees, we review their franchise agreement and franchise disclosure document (aka offering circular), a complex document whose main purpose is to furnish potential franchisees with written disclosures about the franchisor, the franchised business and the franchise relationship.
We advise our clients as to what types of questions they should ask of the franchisor, or existing franchisees of the franchisor, to get a better understanding of the business they are getting into. In addition, while there usually is very little room for negotiation of the franchise agreement, we point out specific items of the franchise agreement that may not work in the Hawaii market and, if required, we negotiate those items with the franchisor.
We also discuss with our clients exit strategies to make sure that they understand the risks in signing the franchise agreement. We have found that most clients ignore the downside and the difficulties in exiting the relationship.
In addition to assisting potential franchisees with the review of their franchise documents, we set up their Hawaii company and review their proposed commercial lease for the location of their franchise. (Please see our Hawaii Business Law section and Hawaii Commercial Leasing section for further information about our services.)
It is important that the terms of the commercial lease and franchise agreement are in sync with each other because a conflict could result in a default by the franchisee under either agreement.
We have also assisted clients who wish to sell or transfer their Hawaii franchise to other buyers. We assist the client in preparing/obtaining the necessary documents and releases for the sale/transfer of the Hawaii franchise.
Hawaii Franchisor
Under Hawaii state law, the following activities will make you a Hawaii franchisor:
- An oral or written contract or agreement, either expressed or implied, with another person;
- You grant to such person, a license to use a trade name, service mark, trademark, logotype or related characteristic;
- There is a community interest in the business of offering, selling and distributing goods or services at wholesale or retail, leasing, or otherwise; and
- Such person is required to pay, directly or indirectly, a franchise fee to you.
If you’re a Hawaii franchisor, then you are required to comply with the Hawaii Franchise Investment Act (Hawaii Revised Statutes, Chapter 482E) which includes providing the franchise disclosure document to potential franchisees as well as filing the franchise disclosure document to the Director of the State of Hawaii Department of Consumer and Commerce Affairs.
For potential franchisors, we assist them in preparing and filing their franchise disclosure document with the Director of the State of Hawaii Department of Consumer and Commerce Affairs. This franchise disclosure document contains 25 items (i.e.: financial information, terms of franchise agreement, etc.) that must be disclosed to the franchisee.
Failure to provide or file the franchise disclosure document could result in significant consequences to the franchisor such as rescission of the franchise agreement, monetary civil penalties and possibly criminal penalties.
Contact us and, as your Hawaii attorneys, we can guide you through this often complex process.
More Articles on Hawaii Franchise
- Hawaii’s Requirements for a Mainland Franchisor Who Sells a Franchise in Hawaii
- Why a Prospective Hawaii Franchisee Should Do Its Own Due Diligence and Not Rely Upon the Franchise Disclosure Document
- Why a Prospective Hawaii Franchisee Should Seek Legal Consultation When Reading the Franchise Disclosure Document and Franchise Agreement