Our Franchise Solicitors appreciate that buying a new franchise, or franchising your existing business, can be both exciting and daunting at the same time. It is however likely to involve, potentially, the most expensive financial dealings you are ever likely to conduct.
So it’s absolutely essential, therefore, that you get the right legal advice from solicitors who specialise in the highly complex legal aspects of franchising – especially for those needing critical intellectual property (or IP) law advice when thinking of franchising their business.
You can rest assured that our team has that specialist franchising experience. We deal with franchise cases both nationwide and more locally throughout Wiltshire, Dorset, Hampshire and Somerset from our offices in Salisbury, Andover and Fordingbridge.
For free initial phone advice about franchising, just call us now on FREEPHONE 0800 1404544 or Salisbury (01722) 422300.
What is a franchise?
When you buy into a franchise, by becoming what is known as a franchisee, your business doesn’t have to start from scratch – in effect you are buying into the right to use an existing business model, products and brand already owned by someone else – the franchisor.
A good franchise effectively replicates another firm’s successful business model, i.e. one with a good track record of profitability, a unique or unusual concept with broad geographic appeal, detailed systems, processes and procedures, which can be easily standardised and duplicated and is relatively simple and inexpensive to operate.
But any franchise is merely a temporary business investment, involving renting or leasing an opportunity, not buying a business for the purpose of ownership.
In essence franchising has been described as “renting a brand”, and for that reason, intellectual property rights [ see below] are central to the franchise concept.
However the franchisor’s success is very dependent on the success of the franchisees. The franchise usually lasts for a fixed time period, broken down into shorter periods which each require renewal.
As part of your franchise you would normally acquire the right to use one or more brand names and an existing business model that often includes details of exactly how to run your business along with plenty of sales and marketing advice and help. Sometimes, depending on whether your industry is a service industry or involved in retail business to business sales you, may well have access to the franchisors’ own products to sell yourself. Normally you pay an initial fee to buy the franchise and it is also common for regular additional payments to be made to the franchisor.
Who our Franchise Solicitors can help
When you buy a franchise, it’s critical that you fully understand what you are going to take on. Our solicitors can both negotiate and advise you in respect of your contract. We will explain your rights and responsibilities on all aspects of your franchise agreement – from performance standards and the territory covered, to aspects of any future termination or sale of your franchise. When it comes to actually setting up your business, our team are also able to assist you with the incorporation of any new company and drafting a shareholders’ agreement,or preparation of a partnership agreement, as well as well as helping you in the purchase or lease of any commercial property required to run your new business.
Click here to read more about the importance of getting the right shareholders agreement or business partnership agreement
Whether it’s help with the termination or sale of your franchise, debt recovery or advice and representation in any commercial disputes, our team can provide the specialist legal advice and support you need.
Our solicitors work with new franchisors on the wide range of issues essential to the launch of a successful franchise – from helping to assess, in the first place, whether your business idea is right to franchise, to the preparation of watertight contracts.
We can help you with a review or amendment of your existing contract, as well as looking at issues surrounding the renewal and termination of any individual franchise
How our team can help you
Our experienced franchise solicitors can provide you with specialist legal advice across a full range of issues including:
- Preparing and reviewing your contracts
- Purchase and sale of both established and new franchises
- Property law advice
- Intellectual property advice including trademark, copyright and design rights advice
- Employment law issues
- Debt recovery – click here read more about how our lawyers can help you with debt recovery
Why choose our Franchise Solicitors?
- We are franchising specialists.
- We can act for you wherever your business is based in the UK, taking your instructions email and phone without the need to meet – although, if you prefer, we can arrange meetings in our Wiltshire and Hampshire offices.
- The highly specialised trademark attorneys from Mears Morgan LLP, work from our offices, to provide comprehensive range of trademark services to protect your branding.
- FREE initial phone advice on franchising issues from our specialist Solicitors.
Spend time on fully understanding your Franchise Agreement
Whether you are a franchisee or franchisor, the Agreement is essential to the well-being of your franchise. Get your solicitor to check your Agreement very carefully – and make you understand exactly what you are entering into, and that you fully understand your rights and responsibilities under the agreement.
In particular you should pay attention to the following key aspects of any well drafted agreement:
- There are normally significant fees which have to be paid to the franchisor on a continual basis – often calculated as a percentage of sales revenue as payment for the franchisee adopting the franchisor’s business model
- The operations of the franchised business should be clearly outlined in the agreement so the franchisee is usually very limited in the direction they can take the business. Restrictions are usually imposed on the geographical location of the business, and there the firm restrictions on advertising and the use of franchise trademarks
- The franchisor may be the one who provides most or all of the stock to the franchisee
- Terms and conditions in the agreement may place restrictions on the ability of the franchisee to sell the business – especially before the contract term has expired.
UK law applies, of course, to franchise businesses in the same way as any other business in the UK. In particular the franchise will be subject to specific laws applying to a particular type of business –e.g. with regard to sole traders, a partnership or a company.
Franchise Pros and Cons
What the advantages of running a franchise?
- A well-run franchise is a ready-made package waiting for someone to run it as a successful business. Much of the complicated administrative work should already have been done so that the franchisee can rely on the established and tested branding to help bring in business. As a result it is often argued that franchising is less risky and expensive than launching your own business and building your own distribution chain
- You have a direct stake in the successful business
- Business acumen is essential when taking on a franchise. However, in well run franchises, the franchisor provides a comprehensive operation manual on how to run the business.
- Marketing a business can be extremely expensive, but in many well-run franchises, the franchisor will take care of much of this for you,providing a quick and easy start up based on a proven brand and infrastructure – which means you get to reap the benefits without the major costs.
What are the disadvantages of running a franchise?
- You might find that your franchisor maintains a level of control over what you are doing, making you feel suffocated.
- Not only this, but as you have to pay regular royalties to your franchisor, it is hard to feel that you own your business, rather than just renting it. These royalties are also normally calculated on a percentage of profit basis, so the harder you work and the more profit you make; the more you pay over to the franchisor.
- You could bear the brunt of bad publicity from the parent organisation when your particular business has actually done nothing wrong. This is something many franchisees worry about when adopting a well-known trade name.
- The quality of franchises varies hugely. The best run provide a comprehensive package including training, great branding and marketing support. However, sadly, not all franchises are like that. Some involve little support or training and others insist on too much control.
- If you’re buying into a franchise, it is absolute essential that you look at the whole business package very seriously – in particular the contract itself. You always need to take good legal advice before buying franchise – and make sure you get it from solicitors specialising in franchising work. Sadly many people don’t take this basic step – and that is one of the main reasons why result franchise disputes are far too common.
Franchising – important considerations for both parties
Important considerations for franchisees
• The franchisee must carefully negotiate the franchise agreement
• There must be assurance that additional franchisees will not crowd the “territory” if the franchise is worked to plan
• A management fee combining a royalty for use of the brand and reimbursement for training and advisory services is made to the franchisor
• The franchisee serves a specific territory or area surrounding its location which may be managed by one franchisee
• The franchisee must carry out the services for which the brand has been made prominent
Important considerations for franchisors
• The franchisor must control the business concept and securing their know-how
• The franchisor must protect the franchisee from any copyright, trademark or other intellectual property infringement by third parties
Contact one of our specialist franchise solicitors today on  422300 so that we can help you during the negotiations, and in particular advise you on the nature of the legal agreement you are entering into.
How important is intellectual property when franchising?
The franchising of any business involves much more than just a business agreement. Intellectual property (which is often referred to as‘IP’) is crucial to the whole concept of franchising. The aim of the franchise agreement is to provide a licence for the franchisee to trade under the same name as the franchisor. A fundamental aspect of a brand or trade name is the intellectual property rights that support it. In fact intellectual property is so central to any franchise, franchising has been described as “renting a brand
What is intellectual property?
Intellectual property (IP) is essentially an umbrella term that incorporates different aspects, including copyright, trademarks, and patents, along with both registered and unregistered design rights.
What intellectual property issues might you have?
When creating a franchise, one of the main intellectual property issues you will need to deal with relates to branding. Typically, this will include the company trade name, logo, trademarks and any other relevant branding material. It is important that the trademarks associated with the parent company are protected, but at the same time, franchisees need to have the right to use them and trade under them as part of their new business.
Issues of copyright can also arise, e.g. if the franchise or provides the franchisees with training or operating manuals and other equipment to help them set up their new business. To protect the value of the business, the copyright must remain with the franchise – with an appropriate license or other agreement for the franchisee to use it freely in order to exploit their newly purchased franchise.
Other relevant IP rights could include;
• copyright over marketing literature or recorded training material
• design rights over any logos
• patents for an exclusive manufacturing process
• registration of a new internet domain name for the franchise.
IP is a complex area of the law and you will always need advice from specialist IP Solicitors when franchising. Our franchising team include both an intellectual property specialist and a specialist Trade Mark Attorney.
What is a Pilot Franchise ?
Our Franchising Solicitors think that in principle pilot franchises are really good idea – but what exactly are they?
The concept is very simple. You may have a great business and think it will transfer well to the franchise format – but running a successful business and replicating it nationwide though a network of franchisors are two very different things. The pilot franchise is, as it implies, the first test – a real opportunity to see if your idea is going to be viable in the marketplace and to iron out problems at an early stage – reducing the possibility for subsequent franchising disputes.
What kind of things can you really test out in a pilot franchise?
- Have you picked the right location?
- How much equipment is required for independent operation?
- How much marketing is required to successfully launch each franchise?
- How much money we really need for franchisors to get the franchisee successfully?
- An opportunity to test and refine your franchise manual
Alongside running a pilot franchise, the other critical thing in launching a successful franchise is getting the core agreement itself right. The whole concept of franchising is dependent on successful exploitation and protection of your intellectual property rights. Make sure, therefore, if you’re thinking of starting your own franchise, or indeed buying into one, that you get the right legal advice from an experienced law firm at an earliest stage.
Restrictive covenants and your franchise agreement
Any well drafted franchise agreement will include a restrictive covenant – limiting the ability of the franchisee to set up a similar business competing with the franchisor or approach previous clients or staff. But it’s well established that such restrictive covenants need to be reasonable – if they are to be legally enforceable. So such a limitation will, for example, only be applicable for a reasonable time and/or reasonable geographic scope.
A recent case gave a helpful indication of what reasonable actually means – the courts upheld a restrictive covenant which prevented the franchisee setting up a similar operation within the franchise territory for a period of 12 months.
But if you are currently a franchisee and you’re unhappy about the nature the franchise – always get specialist franchising legal advice – on whether the restrictive covenants in your particular agreement are likely to be enforceable
Don’t cut corners when it comes to Legal Advice
The decision to sign up to a franchise agreement is not something that should be taken lightly. You are going to need a solicitor with plenty of franchising experience to provide you with the right legal advice and information from day 1. Whether you are a franchisee or franchisor, you must get the appropriate financial and legal advice before entering into a Franchise Agreement – failing to do so could lead to real problems in the event of a dispute arising