A franchising structure is a common way forward for a business that is looking to trade without having a retail or customer facing presence.
Along with agency and distribution arrangements, it is an example of a channel to market: means by which a manufacturer, producer or an intermediary, such as a wholesaler, gets its products to end-user customers. Franchising can also be a useful arrangement when making the move to trading abroad as it can provide an effective initial route to marketing products overseas.
Franchising is fairly common – companies such as Burger King, Subway and Europcar all use a system of franchising. The Franchisor essentially is the company that owns the brand; a franchisee uses that brand to trade under and typically pays a royalty fee to the franchisor.
To be a franchise arrangement, the franchise must have the following characteristics:
• The franchisor allows the franchisee to use a name which is associated with the franchisor.
• The franchisor exercises continuing control over the franchisee.
• The franchisor provides assistance to the franchisee.
• The franchisee periodically has to make payments to the franchisor.
How we can help?
We can assist you in any stage of your franchising process, whether you are a franchisee or franchisor. Typically, if instructed from the outset, we will run through the background of the business and your aims for the franchise. We will then agree on a structure and work with you to implement it with the other parties you have involved. The main concerns you may have when setting up a franchising arrangement are:
• What rights the franchisee obtains;
• Whether the arrangement is exclusive between one franchisee and the franchisor;
• The scope and territory of the arrangement;
• How long the franchise will last for and whether the arrangement can be terminated early and the scope for renewal;
• Whether to implement sales targets and how to monitor them
• How Intellectual Property will be used in the relationship; and
• The key obligations for each of the parties including as an example:
- Regular monitoring and assistance to the franchisee for the franchisor; and
- Hiring suitable personnel for the franchisee
Typically, a franchisee will not be able to freely negotiate the terms of the agreement, particularly with well-known franchises such as those mentioned above. However, overseas, the franchisee’s negotiating position may be greater, depending on the familiarity of the market for the franchisor.
Our expertise in Franchising:
Here are a small selection of the types of clients we have acted for and the work we have done in this area:
• We conducted a ‘red flag’ review of a franchise agreement, for a prospective franchisee of a new sports related franchise.
• We are providing the proprietor of a successful local self-storage business ongoing advice on the setting up of a national franchise network.
Should you have any queries regarding franchising, please get in contact with Robert Capper, head of the Commercial Department, for an initial and no obligation discussion either by phone on +44 (0) 1905 744814 / +44 (0) 7909 970323 or by e-mail at email@example.com.