Why a Prospective Hawaii Franchisee Should Seek Legal Consultation When Reading the Franchise Disclosure Document and Franchise Agreement

Any person who sells a franchise in the state of Hawaii must present to a prospective franchisee a franchise disclosure document (also known as a “franchise offering circular”) at least seven days prior to the sale of the franchise. The intent of the Hawaii legislature in creating this requirement was to:

  • Provide each prospective Hawaii franchisee with information necessary for the prospective franchisee to make an intelligent decision of the franchise being offered; and
  • Prohibit the sale of franchises that would lead to fraud or a likelihood that the franchisor’s promises would not be fulfilled.

The franchise disclosure document usually contains twenty (25) specific items of information about the franchisor’s business together with a copy of the franchise agreement. These items include the franchisor’s history, business experience, financial statements and the names and addresses of all franchisees of the franchisor. Yet, despite the disclosure document’s importance, many prospective franchisees fail to read the franchise disclosure document because this document can be 100+ pages long, intimidating and sometimes confusing. Therefore, it is important for a prospective franchisee to seek legal consultation because a Hawaii franchise attorney can provide a prospective franchisee with the following:

  • Help the prospective franchisee understand his/her/its rights and risks under the franchise disclosure document and franchise agreement;
  • Point out specific items of the franchise disclosure document and franchise agreement that may not be applicable in the Hawaii.
  • Advise the prospective franchisee on how to structure its business to reduce the franchisee’s personal exposure, such as setting up a limited liability company for the lease as well as discussing exit strategies.

As you can see, the franchise disclosure document is important to fully understand because it should be an open book to the franchisor’s business. Therefore, reviewing and understanding the franchise disclosure document and franchise agreement is critical.

Contact us today and we’ll help you review your franchise disclosure document and franchise agreement so that you understand your rights and risks as a Hawaii franchisee.

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