Growth Through Franchising

Date Added 28.04.16

If you have a successful business that you want to expand there are a variety of ways of doing this. One of those is franchising which, to many business owners, is not the first thing that springs to mind. So, what does franchising entail?

By a franchise agreement the business owner (Franchisor) grants a package of rights to a third party (the Franchisee). The rights will include the right to operate a business based upon and using the Franchisor’s proven know –how and system and using the Franchisor’s brand. In most cases the Franchisee is allocated an area within which to operate and depending upon the nature of the business this can be granted to him either exclusively or non-exclusively. The Franchisor will provide training to the Franchisee in relation to how the business should be operated and will provide ongoing support.

In return for the package of rights the Franchisee will make payments to the Franchisor which may include some or all of the following: an initial fee in consideration of the grant of the franchise; ongoing regular payments on a monthly or quarterly basis which can be a fixed amount or (more often) a percentage of the revenue earned by the Franchisee; and a contribution to a central marketing fund administered by the Franchisor.

Growth Through Franchising

The rights and obligations of both parties are set out in the franchise agreement. Typically this is a lengthy document which is one sided in favour of the Franchisor. This is not unreasonable given that the Franchisor is allowing the Franchisee access to the valuable trade secrets and know-how developed by the Franchisor and in respect of which the Franchisor has invested significant time, money and effort. The agreement should not however put the Franchisee at an unreasonable disadvantage. Whilst there is no UK specific legislation in relation to franchising reputable Franchisors will adhere the European Code of Ethics for Franchising and many will also be members of the British Franchising Association which is an advocate of ethical franchising in the UK.

Tollers is an affiliate member of the British Franchise Association so if you are interested in growing your business through franchising or would like our assistance in relation to drafting or reviewing a franchise agreement then talk to Tollers on 01908 396230 and ask for our Commercial Law Team.

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