Franchising the Business – The Legal Issues

There comes a time when most businesses plateau in terms of its overall performance and a decision is taken by the owner to expand in order to increase sales, profits and maintain the business’ competitive position. These owners will understandably explore franchising as a model for growth and expansion. In other articles we have suggested that to be successful as a franchisor then a business must possess a successful prototype, the ability to replicate its success with at least 2 corporate-owned units in operation AND be able to deliver a healthy return on investment to both its franchisees and to the franchisor.

Having received expert guidance in determining a structure for the initial franchise fees, royalties and other payments that it will charge its franchisees it is of equal importance that the resources are also in place [personnel & financial] necessary to successfully duplicate, develop and support its franchised operations.

The appointment of legal counsel [with expertise in franchise law] is integral to the success of a franchise offering. These are some of the key areas that counsel will provide:

·   Review the operations and training manuals from a legal perspective
·   Review promotional material to confirm that no unauthorised earnings claims have been made in error.
·   Prepare a franchise agreement [possibly other agreements as defined by the strategy] together with all  ancillary agreements such as confidentiality, non-competition, general security and other related agreements.
·    Draft a Disclosure Document suited to the franchisor, its system and to comply with the relevant Provinces
·    File trademarks to protect the franchisor’s brand, name, logos and slogans.
·    Secure copyright and patent protection where applicable

A potential franchisor is encouraged to consult with professional advisors [franchise lawyer, banker and franchise consultant] before launching a franchise program. There may be additional expertise required given the nature of the business being franchised but due to the complexities of franchising today, not to seek such professional advice at an early stage of implementing a franchise conversion strategy is a recipe for disaster.

Comments are closed.