August 30, 2016

FRANCHISE LAW IN MARYLAND

                Franchise law is complicated. According to the Maryland Attorney General, Maryland is one of about 15 states that requires "registration" of franchise offerings.
                  
                What is a franchise?  Maryland Annotated Business Regulation Code,  Section 14-201 defines it as follows:
        
                (1) "Franchise" means an expressed or implied, oral or written agreement in which:

                (i) a purchaser is granted the right to engage in the business of offering, selling, or distributing   goods or services under a marketing plan or system prescribed in substantial part by the franchisor;

                (ii) the operation of the business under the marketing plan or system is associated          substantially with the trademark, service mark, trade name, logotype, advertising, or
                other commercial symbol that designates the franchisor or its affiliate; and

                (iii) the purchaser must pay, directly or indirectly, a franchise fee.

                (2) "Franchise" includes an area franchise.

                "Franchisor" means the person offering to sell a franchise. The term "franchisee" means the person buying a franchise.

                There are many laws and regulations in effect to require fair dealing and full disclosure regarding proposed franchise sales and purchases. In addition to the laws governing franchises set forth above, there are many regulations that you must comply with under Maryland's Code of Regulations ("COMAR"). Currently, these regulations are set forth in over 116 pages and can be found at  http://www.oag.state.md.us/securities/SecuritiesAct.pdf.  For more information, see the following links from the Maryland Attorney General's Office:
Information on Renewing and Amending a Franchise Registration

                 A Franchisor also has to comply with Federal laws and regulations of the Federal Trade Commission.

                As if selling or buying a franchise isn't complicated enough, there are many potential issues that can come up  including: registration, renewal, advertising, civil enforcement, criminal penalties, record keeping, liability and releases, false or misleading prospective information or statements, material changes and notice requirements, registration, escrow requirements, disclosure forms, and other financial and legal issues.

                Given the complexity of franchise law, it's wise to hire a knowledgeable attorney to assist you, whether you plan on buying or selling a franchise.

August 23, 2016

WHAT IS AN "OPERATING AGREEMENT" AND WHY DOES MY LLC NEED ONE?

             Say you've decided to form a limited liability company, commonly referred to as an "LLC." You've heard that an LLC needs an "operating agreement" in Maryland but you don't know what that means or how to proceed. This article will guide you.

            The first thing is to be sure that you have the correct legal entity for your business (see prior blog link on choosing a proper legal entity. You may want to consult a lawyer to discuss the pros and cons of each. If you do decide that an LLC is the correct entity for you, you first need to register the entity with the Maryland State Department of Assessments and Taxation (SDAT). A good link on creating an LLC can be found at http://www.dat.state.md.us/sdatweb/artorgan.pdf.

            Maryland law does not require that an LLC have a written operating agreement. However, it is advisable to put your agreement with your fellow LLC members in writing. The agreement itself is not filed anywhere. Nevertheless, it is a binding contract with legal ramifications. 

            The operating agreement, while not filed with the state, should be kept with the LLC's permanent documents. The operating agreement is an important binding agreement that outlines the roles and responsibilities of the member(s). It should set forth the framework of how the LLC will be funded, run, organized, and managed. It should include specific and detailed information regarding, for example, the name of the LLC, the registered agent, the address, the date of formation, the terms under which the LLC will operate, the purpose of the LLC, the names of the member(s), and procedures relating to meetings. It should specify who will fund the LLC and make financial decisions for the LLC. It should specify the percentage of member(s) ownership, voting rights and responsibilities, and sharing of profit and losses of the LLC. It may include provisions on how to modify or amend the agreement or make changes to the LLC or deal with dissolution of the LLC. The Maryland statute on operating agreements can be found in the Corporations and Associations Annotated Code, Section 4A-402, and linked here for your convenience: http://www.lexisnexis.com/hottopics/mdcode/.

            Sometimes people ask if an LLC has shares of stock like a corporation. It does not. The members own "LLC interests" or "membership interests." The interests that each member has is set forth in the operating agreement and may also be documented in a certificate of ownership or interest. Even if LLC interests are not documented in a certificate, like a stock share, it is very important to documents when interests are transferred, bought or sold.

            The whole purpose of an operating agreement is to provide a well thought out structure of the LLC in advance of starting it. Much of the work in creating a strong operating agreement is a clear vision for your business and a well thought out way to execute it.

            A well thought out and planned operating agreement can get an LLC off to a strong start, with a clear purpose and a way to achieve it clearly spelled out. This can avoid costly litigation and ill will among members should there be a dispute on how the LLC is run. Planning ahead is both wise and cost effective.


            If you search online you can find a number of sites with "free" or "for a small fee" websites that will provide forms for your operating agreement. Be careful. While these can be a good starting point, if you haven't fully thought out all the angles of setting up and running your LLC, these may not be advisable for you. An experienced business attorney can make sure you have considered all the issues important to your specific LLC and mission, and prepare an operating agreement that covers what you need.

August 17, 2016

SHOULD I HAVE A LAWYER REVIEW MY COMMERCIAL LEASE AGREEMENT?


            You're an owner leasing commercial rental property or a tenant wishing to lease. You've
agreed on the important lease terms such as square footage, rent, and term. So why should you
spend the time and money to involve a lawyer you ask? On both sides, it's advisable.

            Leases are contracts and commercial leases are usually contracts involving a lot of money
over a long term. Therefore, you want to be sure that the written lease agreement actually
reflects what you agreed upon. The precise wording in these contracts is critical and has
legal ramifications. Lay people may not be aware what the terms mean legally. It's important
before you sign any lease agreement to understand what you are signing, what rights you are
getting and what rights you are giving up.

            You also need to know what liability you may face. In addition, you need to protect
yourself in case problems arise. Many questions can arise after a lease agreement is signed.
These are as varied as the individual deal itself. For example, if something major like the heat or
air conditioning breaks, is the landlord or the tenant responsible for the cost of repair? Another
example could be who is responsible to clean snow from the sidewalks, landlord or tenant?
Other issues may include use of the property, term, rent (there are different types of commercial
rentals, and ways to calculate the rent), subletting, renewal, default, warranties, insolvency,
signage, parking, covenants, restrictions, maintenance and repairs, build outs and property
changes, lease modifications, zoning, insurance and utilities, taxes and assessments, rights with
respect to other tenants, and  other issues particular to your lease. You can see that the list of
issues is long.

            When you've gone through all of the stress of getting to the point where you sign the
lease, you may be just ready to sign the lease. But don't, without carefully reviewing the lease
and your understanding of it with a business attorney. This extra step can make for a sound
deal that meets your needs. A knowledgeable attorney can advise you before you sign if the
lease has potential problems. If so, addressing them in advance is often much easier and cost effective.