Commercial Agreements

Franchise Solicitors

What is a Franchise

Franchising is essentially the permission given by one person (the franchisor) to another person (the franchisee) to carry on a particular business using a specific name belonging to the franchisor. There will be a Franchise Agreement which will impose restrictions on the parties. In return for payment of fees periodically and acceptance of those restrictions, the franchisee will be given the right to use the franchisor’s product or business idea and also its general style, including intellectual property rights (such as copyright and trade marks) and will generally be obliged to adopt the franchisor’s style.

Each business outlet is owned and managed by the franchisee. However, the franchisor retains control over the way in which products and/or services are marketed and sold, and controls the quality and standards of the business, once again through the Franchise Agreement and an Operations Manual.

If You Are A Franchisee

Whether you are a potential new franchisee wondering whether a franchise opportunity is suitable for you, or an existing franchisee looking for advice on a current arrangement, we hope the information set out below is useful. Please contact the commercial law team at Lanyon Bowdler with any further enquiries you may have.

The Advantages and Disadvantages

In order to decide whether taking on a franchise is the best decision for you, it is essential that you have some understanding of the perceived advantages and disadvantages of franchising. The advantages can include:-

  • it is your own business, subject to the franchisor controls under the Franchise Agreement and Operations Manual
  • someone else has already had the bright idea and it has been proven in the marketplace
  • there will often be a familiar brand name which should have existing customer loyalty
  • you appear to be part of a large organisation which generates confidence in customers and suppliers
  • there may be a national advertising campaign
  • some franchisors offer training in selling and other business skills
  • some franchisors may be able to help secure funding for your investments as well as discounted bulk buy supplies

The potential disadvantages can include:-

  • it is not always easy to evaluate the quality of a franchise especially if it is relatively new
  • extensive enquiries may be required to ensure a franchise is strong, which can be an expensive and time consuming process
  • a percentage of your annual turnover will have to be paid to the franchisor by way of an annual fee
  • the rights of the franchisor, for example to inspect your premises and records and dictate certain methods of operation, may seem unnecessarily onerous and restrictive
  • you may be obliged to purchase some or all of the products to be used in the business from the franchisor
  • should the franchisor fail to maintain the brand name or meet other commitments there may be very little you can do about it

Choosing a Franchise

There are many factors you will need to take into account when choosing a franchise. These can include:-

  • your own strengths and weaknesses – make sure they are compatible with the franchise. Does the franchisor provide any training or support to improve your business skills?
  • the business’s strengths and weaknesses - thoroughly investigate the business you are planning to buy
  • local competition - research the local competition and make sure there is demand for the product or service in the region
  • the franchisor - most importantly, either take up references directly or ask for references from existing franchisees. Are they happy with how things are going and with the level of support from the franchisor? Make sure you get a full list of the existing franchisees and not just those hand picked by the franchisor
  • tax and financial aspects - talk to an accountant about the financial projections for the business (cash flow, working capital needs and profit projections) and draw up a business plan

Franchise Agreement

For franchisees it is important to understand the consequences and implications of entering into a Franchise Agreement and to make sure that the franchise being granted accurately reflects your commercial understanding. In particular, Lanyon Bowdler can advise on and undertake the following:

  • the implications of a proposed Franchise Agreement
  • negotiations with franchisors to achieve the best possible terms
  • a review of any Operations Manual and the business terms and conditions you will be required to comply with so that you understand their implications and your exposure
  • exit strategies, settlement agreements and the enforceability of restrictive covenants

Before making any commitment, or paying any money, it is essential that prospective franchisees make the right choices and seek the correct advice from solicitors who understand the complex commercial and legal issues involved in franchising. At Lanyon Bowdler our commercial law team has that experience. For more information on franchising or if you would like us to review a Franchise Agreement on a fixed fee basis please contact us.

If You Are A Franchisor

Almost any business is capable of being franchised, given the right advice at the right time. Whether you have a successful existing business which you wish to expand or you are a newly formed business or existing business with little of no experience in the proposed industry we hope the information set out below is useful. Please contact the commercial law team at Lanyon Bowdler with any further enquiries you may have.

The Advantages and Disadvantages

In order to decide whether franchising your product or business idea is the marketing arrangement for you, it is essential that you have some understanding of the perceived advantages and disadvantages of franchising. The advantages can include:-

  • the opportunity to secure distribution for products or services faster than doing it yourself
  • the franchisee’s funds rather than your capital are used to establish the business
  • the franchisee is motivated because its financial well-being is linked to the success of the franchise

The potential disadvantages include:-

  • whilst the Franchise Agreement will impose restrictions on the activities of your franchisees, you will still lose, to some extent, the control you have over your own products or business ideas
  • you will need to invest some of your profits in supporting the franchisee
  • you will have to share your know-how and confidential information relating to your business with your franchisees but this will be subject to confidentiality restrictions in the Franchise Agreement

Franchise Agreement

From a franchisor’s perspective it is important to ensure that your business format is protected and that you have sufficient control over your franchise network. It is important to remember that the Franchise Agreement itself is not only a legal document but is also a selling document which should not be off-putting to a prospective franchisee. It is important that you seek advice from solicitors with experience in franchising arrangements who can ensure that the Franchise Agreement will be appropriate. In particular, Lanyon Bowdler has the experience to advise on and undertake the following:

  • establishment of a franchise network
  • drafting Pilot and Master Franchise Agreements
  • exit strategies, settlement agreements and the enforceability of restrictive covenants

As there are no specific franchising laws in the UK legal issues can arise if legal advice is not taken. The most common are:

  • restraint of trade
  • employee issues such as TUPE / transfer of undertakings
  • commercial property
  • franchisor’s liability

If you are propose to engage in any of the above then it is vital that you seek legal advice well in advance.

Alternatives to Franchising

There are a range of marketing arrangements using representative intermediaries open to you if you want to market your product or business idea but you feel that franchising may not be the most suitable way forward.

These include:

  • distribution – you could appoint an independent distributor to market and sell your products, which would purchase the goods on its own account and trade under its own name. You would have less input over the way in which the distributor operates its business other than, for example, to oblige it to maintain minimum turnover levels and advertising spend. Clickfor more information about distribution agreements
  • agency – agents don’t purchase products in their own name and all sales contracts are entered into between you and your customer via the agent who is acting on your behalf. In an agency agreement you would typically have fewer restrictions over the agent except to define the agent’s power to legally bind you. Clickfor more information about agency agreements
  • subsidiaries – a company may choose to market its different product or business ideas through a network of subsidiary companies. Click here for more information about our corporate law and company formation services
  • licensing – intellectual property rights or know-how are often licensed to another manufacturer to enable it to produce and/or sell products. You would seek to impose quality control obligations in relation to the products to be produced but would not require restrictions on how the licensee operates it business. Clickfor more information about intellectual property and licensing agreements

Franchise Solicitors

If you are a potentially new franchisor our commercial law team will review your business to see whether it is franchiseable or whether there are better alternatives and then assist and support you to implement the most appropriate arrangement to achieve your business goals. If you are an existing franchisor our franchise experience will give you the confidence that your legal team is there to support you allowing you to concentrate on successfully building your franchise.

Contact Lanyon Bowdler

We don't just sell time; we sell experience, expertise, know-how and results, and are able to offer a wide range of pricing options which may include Fixed Fees and Service Level Guarantees.

Give us a call on 0800 464 0086 or complete our online enquiry form, to see how we can help. We have offices in Telford, Shrewsbury, Oswestry, Ludlow, Bromyard and Hereford so are able to act for clients all over Shropshire, Herefordshire, Mid and North Wales and across the Midlands.

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