Sheehan & Associates, P.L.C.

Franchise sellers face penalties if sales do not comply with law

Michigan individuals who sell a franchise must follow strict guidelines regarding information that must be provided to a potential buyer about the franchise. If these rules are not followed, the seller can face stiff penalties.

A franchise seller must provide the potential buyer with a disclosure statement, notice and a copy of any proposed agreements regarding the potential sale 10 business days or more before a franchise agreement or before the seller receives consideration for the sale. Additionally, a seller is prohibited from making any dishonest statements of material fact or omitting such statements or to defraud the potential buyer in anyway.

If the seller does not comply with these rules, he or she is liable to the buyer for 12 percent of the contract price per year. Additionally, he or she is also liable for reasonable attorney fees and court costs. If the seller decides to rescind the contract rather than fulfill it, he or she is still liable for the same amount. However, an individual cannot file or maintain a lawsuit according to these provisions if the buyer had received an offer to purchase the property before the lawsuit was filed that would refund the amount of consideration he or she paid and interest from the date that he or she purchased the property, minus the amount of income that the buyer has received from the operation of the franchise and refused to accept the offer within 30 days from the time that it was made.

Appropriate business planning may help protect individuals from facing these types of penalties. Individuals interested in selling a franchise may choose to consult with a commercial lawyer. He or she may be able to inform the seller of disclosure requirements and other legal requirements to protect him or her.

Source: Michigan Legislative, "FRANCHISE INVESTMENT LAW Act 269 of 1974", November 11, 2014

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