Issues of Finance and Franchise Solicitors

In every franchise agreement there will be a description of how the franchise is to be financed and how any such arrangement will work.

This is definitely an area where good franchise legal advice will be needed, so you should raise the issue of financing with your franchise solicitors as soon you possibly can. Read this article to discover more information about what financial responsibilities are held by both the franchisor and franchisee.

Franchisor

In terms of the parent company, one of your main financial responsibilities is to make sure your company is viable as a business. After all, there is no point in franchising your business, if your franchisees won't be able to make any money. You need to be able to prove the sustainability and profitability of your business; this is something that you can get help with from your expert solicitors.

Something else you will have to do is to work out how much you are going to charge your new franchisees to buy in to the business. This will normally include an up-front fee and then they will subsequently pay you royalties once their business is up and running. The value of these royalties will be dependent on their profits, so one option if you are confident that their business will perform well is to put the weight on the royalties rather than the initial start-up fee.

Franchisee

As a would-be franchisee, it's vital that you seek specialist franchise legal advice about your financial responsibilities as you need to make sure you'll be able to handle them before signing any agreement.

One of the main costs you'll have to pay is the up-front fee to the parent company. You'll need to set up your own company to do this and the average cost is currently somewhere around £46,000 although it varies between franchises. This means you need to know you can raise the capital to pay for the investment. You will owe the franchisor royalties for the arrangement, therefore you will need to include the cost of these into any financial calculations you make - your franchise solicitors can advise you on this.

People whom are new the franchising should also be aware that they will incur additional costs through the day-to-day running of the franchise. There needs to be an agreement with the parent company as to who is going to pay for costs such as staff training, uniforms and so on; if the responsibility falls to the franchisee then you'll have to make allowances for this in your budget, too.

Bonallack & Bishop offer experts in giving franchise legal advice? They can offer experienced advice from their franchise solicitors. Senior Partner Tim Bishop is responsible for all major strategic decisions, seeing himself as a businessman who owns a law firm.

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Which Franchise Legal Advice Should You Choose?

If you are considering getting into franchising or possibly even turning your current business into a franchise opportunity, then legal advice is an absolute must.

The role of franchise solicitors is to provide you with specialist, impartial advice as to whether you are taking the right course of action and to make sure you are fully informed throughout the legal process. They can draft agreements, review, amend and terminate agreements, as well as providing assistance on issues such as intellectual property and any disputes that might arise.

Read on to find out about things to consider when you are choosing where to go for your specialist franchise legal advice.

Are they specialists?

One of the key questions you need to ask yourself when choosing franchise solicitors is: are the legal team specialists at what they do? Franchising is a highly complex and specialised area of law so it is vital that you get a legal team that know exactly what they are doing and are highly knowledgeable about all of the relevant issues. As well as franchising, it can also be useful to choose a team of solicitors that have knowledge of intellectual property, employment law and property law, as these issues are all relevant to the franchise process.

Are they experienced?

It can also really help to get your franchise legal advice from a team that is experienced as well as knowledgeable in theory, as practical experience will be invaluable when it comes to drafting new agreements. Look for a firm that has a good previous client list and, if necessary, ask if you can see some testimonials from franchising clients they have worked with, so you can get an idea of their expertise.

What can they help with?

You should also make sure you get a list of the service the solicitors are able to offer. As mentioned above, issues relating to employment, property and intellectual property are all relevant to franchising and so it's a good idea to go for a legal team that will be able to offer you services in those areas as well as in creating and offering other services related to franchise agreements.

Are they recommended?

Finally, it's always best to get your franchise legal advice from solicitors that come recommended. Reading testimonials from previous clients can be a good idea, as can talking to previous franchisees to get an idea of the service you can expect to receive. This will help make sure you and your solicitors are a good fit and that your business gets off to the best start possible.

If you need specialist franchise legal advice and if you want some help from expert franchise solicitors then contact Bonallack & Bishop today. Senior Partner Tim Bishop is responsible for all major strategic decisions.

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Importance of a Quality Franchise Agreement

The Indian franchising industry has seen robust growth over the past decade. In spite of the economic recession, the annual growth rate of the franchising industry in India has remained positive and is currently pegged at 30%-35%. The success of the franchising story in India is a testament to the huge potential and promise that India holds for the franchising industry.

In India, franchising has gained considerable popularity in numerous sectors, such as, education and training, healthcare and wellness, information technology services, and in particular, the retail sector including, food and beverage, fashion and lifestyle, etc. However, franchising of products and services in India is still in its infancy thus presenting to interested foreign enterprises a vast untapped business opportunity.

A fast growing middle class population with a faster growing disposable income and propensity to spend is one of the paramount reasons for the mushrooming of the franchise industry in India. Additionally, the entrepreneurial character of India's population and increased brand and quality awareness amongst urban consumers provides another impetus to franchising in India.

Apart from a huge consumer base, next only to that of China, exposure to international standards of goods and services and availability of skilled, technology savvy and relatively cheaper human resources, India has one of the fastest growing retail sectors. As per Business Monitor International's India Retail Report for the third quarter of the financial year 2010, retail sales are expected to grow from $353 billion in 2010 to $543 billion in 2014. Clubbed together, these factors present a highly lucrative business opportunity for foreign enterprises wishing to franchise their business, brands, or their products.

Franchising is a relatively modern distribution channel that permits foreign brand owners to exercise a substantial degree of control over the manner and mode in which their products or services are offered and sold to consumers. It ensures efficient and rapid trans-border market penetration to the Franchiser, an opportunity to take its brand beyond boundaries with minimum capital investment and risks.

Simply put, a franchise is a business model premised on a license granted by one entity (the 'Franchiser') to another (the 'franchisee') permitting use/exploitation of the Franchiser's intangible assets such as brand/trade name, business model and concept, image, marketing techniques and other intellectual property for the purpose of making sales or providing services in a defined geographic location in return for a sum of money.

India does not have a consolidated legislation regulating franchising, although private sector bodies have been lobbying for enactment of franchise specific legislation. Some key laws which impact franchising in India include the Indian Contract Act, 1872, the Competition Act, 2002, the Trademarks Act, 1999, the Copyright Act, 1957, the Patents Act, 1970, the Consumer Protection Act, 1986, the Foreign Exchange Management Act, 2000, labour and taxation laws.

Importance of a Quality Franchise Agreement

'Quality' in any agreement, regardless of its subject matter, is, inter alia, seminal for mitigation or avoidance of disputes between contracting parties. 'Quality' of an agreement may be assessed on numerous parameters including: clarity in purpose, holistic/loophole free character; unambiguous provisions/terms/conditions with no scope for contradiction; manner of presentation; and most important enforceability.

A 'franchise agreement' is a contract between the Franchiser and the franchisee which defines their relationship and inter se rights and obligations.

'Quality' assumes even more significance in a franchise arrangement due to the inherent commercial and operational complexities present in such arrangements. A quality franchise agreement must effectuate the underlying symbiotic relationship between the Franchiser and the franchisee.

A quality franchise agreement must ensure clear, unambiguous and water tight coverage of all critical issues, such as, roles and obligations of the parties, confidentiality and intellectual property protection; payment terms and taxes; duration, renewal and termination; agency issues; post termination issues; negative covenants; governing law and jurisdiction (especially in international franchise arrangements).

A good franchising agreement should in addition ensure that quality control mechanisms do not flout India's competition laws. For instance, in certain situations a provision obliging a franchisee to source products exclusively from the Franchiser or any other specified entity may be regarded as anti-competitive and in contravention of the provisions of the Competition Act, 2002.

Naturally, the importance of a quality franchise agreement for a Franchiser and a franchisee differs considerably as discussed below.

The Franchiser's Perspective:

The importance of a quality franchise agreement for a Franchiser cannot be stressed enough. Of paramount importance for the Franchiser is protection of its brand, image, reputation, know-how, business concept and other intellectual property rights as well as limiting exposure to potential risks and liabilities resulting from the franchisee's conduct.

It is important that the franchise agreement is carefully drafted to ensure clarity on duties and services of the franchisee including in the areas of investment and infrastructure, adherence to specific operating guidelines to maintain uniformity, reporting requirements, quality maintenance; annual market penetration targets; financial returns such as royalty and fee payment, etc.

A quality franchise agreement should provide adequate fetters and security against misuse of the Franchiser's intellectual property rights by the franchisee. Further, it must provide enough quality control mechanisms to the Franchiser, including control over managerial discretion of the franchisee, to enable it to control its business concept and protect its brand and reputation. Consequently, the franchise agreement must unambiguously and comprehensively address vital issues, such as, the temporal and territorial scope of the license, the rights and property licensed, nature of the license, restriction on use of licensed rights and property, quality control measures, including periodic audits to ensure that the business concept is adhered to, sourcing of products, training, type of products to be sold under the franchise, etc. The business concept being licensed and mode and manner of operation must be clearly stipulated to enable the franchisee to conform to it. However, the downside of excessive control over a franchisee and franchised products is that the Franchiser may become susceptible to liability for acts of the franchisee in claims by third parties. A quality franchise agreement should ensure that the relationship is on principal to principal basis and the Franchiser is not liable for the franchisee's acts and omissions.

Another crucial issue for the Franchiser is protection from competition by its franchisee. It is common practice to include non-compete covenants during and post termination in most franchise agreements. However, a quality franchise agreement, like any other agreement, must have a carefully crafted non-compete clause to ensure that it is enforceable under law and not a redundant term. Unreasonable post termination non-compete clauses which are against public policy and in restraint of trade would be enforceable.

A quality franchise agreement should ensure that the franchisee conforms to the business concept. It must have stringent provisions to deal with situations of breach and non-adherence to the business format and misuse of brand by the franchisee. Also, the franchise agreement must protect the revenue flow from the franchisee to the Franchiser.

Issues related to governing law and jurisdiction, post termination obligations to ensure protection against breach of confidentiality and intellectual property, inventory handling are equally critical and need to be adequately addressed in a franchise agreement to ensure effective control and systematic business expansion.

The Franchisee's Perspective:

'Quality' is as serious an issue for the franchisee as it is for the Franchiser. As the initial investment in the venture is that of the franchisee, a quality franchise agreement is essential for a franchisee to capitalize on its investment.

For a franchisee, a quality franchise agreement must have clearly defined payment terms with no hidden fees or costs and a clearly defined area of operation. It must protect the franchisee from infringement of third party's intellectual property rights due to use of Franchisers intellectual property by the franchisee. Further, the franchise agreement must enable the franchisee to optimally leverage the brand and other intellectual property rights licensed by the Franchiser and ensure continuity of supply (wherever applicable). Therefore, a clearly and properly defined business concept and format is as important for the franchisee as it is for the Franchiser. It helps the franchisee avoid implementation issues and ensure profitability of the venture. A quality franchise agreement should enable the franchisee to extract maximum support for implementation of the business concept from the Franchiser by way of training, up-gradation of concepts and evolving technologies, etc. The relationship between the Franchiser and the franchisee should be that of independent parties and the agreement must be carefully drafted to avoid an inference of agency.

Thus, a quality franchise agreement is the very fulcrum upon which the success of a franchise rests which by itself underscores the importance of 'quality' in franchise agreements.

Seema Jhingan

Areas of Practice:

Infrastructure, Telecommunications, Private Equity and Venture Capital, Mergers/Acquisition, Education, Software/Information Technology, Business Process Outsourcing, Media & Entertainment, General Corporate and Commercial, International Arbitration.

Professional Summary:

Seema Jhingan's practice spans over seventeen years during which she has acquired substantial expertise in representing developers, sponsors/lenders, venture capital investors, international corporations, financial institutions, and other strategic investors involved in the establishment, development and financing of major infrastructure, IT and education projects in India.

Seema is a Partner with a Delhi Based Law Firm LexCounsel Law Offices and regularly contributes to journals and publications and often takes up speaking engagements.

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Reasons For Hiring a Franchise Solicitor

If you are thinking of becoming a franchisor or franchisee, or if you are already involved in a particular franchise, you are highly likely to need the services of a franchise solicitor.

This article looks at how a franchise solicitor can help you and why you should definitely make sure you have a team of specialist solicitors on your side - and ones who can provide a wide range of legal support including intellectual property advice.

Initial advice

One of the main reasons for using a franchise solicitor is that they will be able to provide you with specialist advice. Making the decision to become either a franchisor or franchisee is not one to be taken lightly and so it definitely pays to be informed and make sure you have explored all of your options before taking the plunge.

For instance, franchising solicitors will be able to help parent companies decide whether to expand through franchise or whether there are other, more beneficial options that they should explore as becoming a franchisor isn't right for everyone. Solicitors will also be able to advice would-be franchisees, making sure they know their rights and responsibilities and making sure that they have the financial ability to buy into their new business before going ahead.

Drafting new agreements

Another key role of solicitors is to draft new franchise agreements. This is really important as all agreements need to abide by UK law, European law and the relevant code of ethics. This means that agreements have quite a lot to take into consideration and so the services of specialist solicitors will be invaluable.

Reviewing and terminating agreements

Agreements also need to be reviewed from time to time to make sure that the contracts are still relevant, up-to-date and cover all appropriate eventualities. This is something else a franchise solicitor will be able to do, as well as providing assistance in the event that an agreement needs to be terminated.

Intellectual property

Intellectual property [or IP] incorporates issues such as business trade name, trademark, other branding and any other material associated with the business. This could include training materials or perhaps a particular model of business, what the code of ethics refers to as 'know how'. It is important to get specialist intellectual property advice so that the right arrangements are in place to make sure the owner of the intellectual property (normally the parent company) is protected, but that the franchisee can also operate under the relevant brand without hindrance.

Resolving disputes

If any franchise disputes were to occur, a solicitor would also be able to assist to help resolve them, meaning that the role of the franchise solicitor is both varied and immensely important when trying to create a successful franchised business.

If you require a specialist franchise solicitor, talk to Bonallack & Bishop - solicitors who can also provide you with the city quality intellectual property advice your franchise will require.

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What Should You Do In a Franchise Dispute?

Irrelevant of how slick a franchise operation is put together, it is inevitable that some disagreements between the parties involved will arise.

In this case it is prudent to consider the situation carefully, so as to resolve it in the best possible way and shorten the process as much as possible.

A franchise dispute could arise for all manner of different reasons. Thankfully such disputes are reasonably rare but they can crop up if changes should occur or if some promised by either the franchisor or the franchisee isn't done. For example comprehensive training may be offered as part of the franchise deal. If the franchisee should sign up for the deal and not receive the training as promised, they would have a case to bring against the franchisor.

Of course any experienced franchising solicitor will know that the last thing anyone would want is to take legal action. In most cases they will recommend mediation in an attempt to resolve the issue. But even if legal action is not taken (and in many cases it won't be) it is still best to rely on the services of a franchising solicitor in order to resolve the matter with mediation. Emotions are very likely to be involved between the franchisee and the franchisor. Having solicitors acting on behalf of both parties means that the situation will often be resolved more respectably and more quickly than it would be otherwise.

If you should ever find yourself in this situation, the first step would be to get professional advice on the franchise dispute. Don't opt for the first solicitor you find - ensure you locate a franchising solicitor who has extensive experience of dealing with such cases. They will be able to use their experience and knowledge to help you resolve your own dispute in the fastest time possible, while still being able to maintain a good relationship overall with the franchisor.

The good news is that many franchise relationships experience nothing more than the odd bump in the road. Most problems may be able to be sorted out between the two parties with no legal mediation required. But it is heartening to know that if you should find yourself in a situation where you don't know what to do next to preserve your business, help is at hand. Providing you know you have a solicitor close at hand that you can call on, you will be able to take a lot of the stress out of the situation.

Whether you are buying or selling a franchise, or involved in a franchise dispute, you are going to need the help of a specialist franchising solicitor. Contact the franchising specialists at Bonallack & Bishop first.

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Franchising Issues That Your Franchise Solicitors Can Help With

Franchising offers many good opportunities for the modern day business. However it is a process which should never be taken on lightly and it doesn't always suit every type of business.

This article looks at some of the things you should definitely think about when considering going into a deal as a franchisee; if you have questions or are confused, your franchising solicitors will be able to provide you with more information.

Costs and financing

As any franchise solicitor will tell you, one of the most important issues you need to consider with any business deal is how much it costs and how you are going to pay for it. When you are thinking of becoming a franchisee, you need to know where your financing is going to come from as it is more than likely you will have to buy in to the agreement. This could be more than £45,000 depending on the business, so it is definitely something to consider.

As well as the initial start-up costs, you also need to think about your long-term running costs as you need to know you will be able to make ends meet while you get everything up and running, just as you would with any other business.

The franchise itself

You should also think about the company you are planning to make an agreement with. What industry are they in? Do you have experience in that industry? Does the company have a good reputation? If the company already has franchisees, it can be a good idea to talk to them so you can get a better idea of what it might be like if you decide to go ahead with an agreement.

Length of the agreement

The length of the contract is another important issue to consider before going ahead with any agreement. Some contracts are relatively short (up to three years, for example), while others lock you in for a decade or more so you should think about what you want before signing anything. Your franchising solicitors will be able to talk you through your options.

Who has control?

What you actually get for your money is important, too, as some franchises offer their subsidiaries more control than others. You need to know who would have financial responsibility for things such as uniforms and training, as well as how much creative discretion you'd be allowed, as some companies are stricter about following precise business plans than others.

Intellectual property

Intellectual property advice is another issue it's worth thinking about as trademarks, training manuals, promotional material and more all fall under this banner and so licenses need to be sorted out for the franchisee. In fact as franchising has sometimes been described as "renting a brand", issues about branding are critical - so you will need to make sure that you get expert intellectual property advice as part of your legal package from your solicitor. This is something your franchise solicitor will be able to guide you through to make sure you understand what's happening.

If you need the services of an expert franchise solicitor. If you want intellectual property advice then contact Bonallack & Bishop today. Senior Partner Tim Bishop is responsible for all major strategic decisions.

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