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Is Franchising right for you?

Thinking of expanding your business?

If you are looking to expand your business, one of the first things that you need to consider is whether franchising is the appropriate method for you.

Are you considering the franchise option?

If you are considering the franchise option, follow stages 1 and 2 below to check whether you can franchise your business, and if so, to choose the appropriate franchise structure for your business.


Stage 1 - Can you franchise your business?

In order to franchise your business, the following core elements must be present:

  • You wish to expand your business

  • You have a business format which can be replicated

  • You have definable know how i.e. a distinct way of doing things that distinguishes your business format to that of another

  • You have branding (e.g. trade marks, logos, trade names etc.) which is distinct to your business and which can be licensed to others in conjunction with the business format.

As you and your business prepare to franchise, it is important that the business format, the know how and the brand are correctly protected and documented.  We can assist you with this to help reduce and manage your risks.

Stage 2 - Which Franchise Structure Suits Your Business?

If the core elements detailed in Stage 1 above are present and if you decide that franchising may be an appropriate vehicle for expanding your business, then the next issue that you will need to consider is: which franchise structure is suitable for your business?

Whether you are looking to expand your business in the UK or internationally, the questions and advice below will offer you some basic guidance as to which structure you should consider adopting. You should bear in mind that there is nothing to stop you from adopting different structures in different regions/countries. In fact, within certain parameters it is advisable to adopt the most appropriate structure for each particular region/country based on your strategies and the legal and commercial framework within such region/country.

If the questions and advice in this section do not give you the answer that you are looking for, or if you do not have an existing business, but are looking to develop a new product/service, please do not hesitate to contact us to discuss your options.

 

1. Do you want to grow your business?

YES

NO

  • If you do not wish to grow your existing business, franchising may not be for you.

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2. Do you want to open new Outlets and/or provide your services/products through licensed third parties?

YES

NO

  • You should consider adopting a Corporate Franchise Structure.

A Corporate Franchise Structure allows you to grant one or more of your subsidiary companies (a Corporate Franchisee) the right to operate an Outlet of your franchised business and/or provide your services.  In effect you are opening new Outlets or expanding the operation of your services yourselves, through your subsidiary companies (a Corporate Franchise).  We can advise you further regarding this structure if necessary.

To document the structure, you will need to enter into Unit Franchise Agreements with your subsidiary companies. We can assist you with drafting the Unit Franchise Agreement and other relevant agreements as well as advising you on the legal and commercial issues that you will need to consider.

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3. Will you grant your franchisee the right to open more than one outlet and/or provide the services in more than one region/territory?

YES

NO

  • You should consider adopting a Unit Franchise Structure.

A Unit Franchise Structure allows you to grant a third party (a Unit Franchisee) the right to operate one Outlet of your franchised business and/or provide your services (a Unit Franchise). This is the simplest and most common form of domestic franchising.  We can advise you further regarding this structure if necessary.

To document the structure, you will need enter into a Unit Franchise Agreement with each Unit Franchisee in respect of the Unit Franchise that it will be operating.

We can assist you with drafting the Unit Franchise Agreement and other relevant agreements as well as advising you on the legal and commercial issues that you will need to consider.

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4. Will your franchisee have the right to sub-franchise rights to others?

NO

YES

  • You should consider adopting a Master Franchise Structure.

A Master Franchise Structure allows you to grant a third party (i.e. a Master Franchisee) the right to sub-franchise a substantial territory (usually a whole country or a particular region) (i.e. a Master Franchise). The Master Franchisee is granted the right by you to grant third parties (i.e. a Unit Franchisee) the right to operate one or more Outlets of your franchised business and/or provide your services in one or more regions (i.e. a Unit Franchise). The Master Franchisee is in many ways similar to a Franchisor. The term "sub-franchisor" is therefore sometimes used instead of Master Franchisee and Unit Franchisees may be referred to as sub-franchisees. This is one structure adopted by many Franchisors looking to enter a new country. The Master Franchisee needs to have sufficient drive and resource to fully exploit the territory and control the Unit Franchisees territory. We can advise you further regarding this structure if necessary.

In practice, Master Franchisees may also be permitted to operate their own Outlets and/or provide your services in the territory. In such a scenario, the Master Franchisee may operate an Outlet of your franchised business and/or provide your services as a Corporate Franchisee.

To document the structure, you will need to enter into a Master Franchise Agreement with the Master Franchisee and the Master Franchisee will need to enter into a Unit Franchise Agreement with each Unit Franchisee. We can assist you with drafting the Master Franchise Agreement, the Unit Franchise Agreement and other relevant agreements as well as advising you on legal and commercial issues that you will need to consider.

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5. Will you allow your franchisees to develop specific regions themselves?

YES

NO

  • You should consider adopting a Multiple Unit Franchise Structure.

A Multiple Unit Franchise Structure allows you to grant a third party (a Multiple Unit Franchisee) the right to operate more than one Outlet of your franchised business and/or provide your services in more than one region (a Multiple Unit Franchise).  We can advise you further regarding this structure if necessary.

To document the structure, you will need to enter into a Unit Franchise Agreement with the Unit Franchisee in respect of each Outlet that the Multiple Unit Franchisee opens. We can assist you with drafting the Unit Franchise Agreement and other relevant agreements as well as advising you on the legal and commercial issues that you will need to consider.

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6. Do you want to own a shareholding in your franchisee? i.e. a subordinated equity structure where you own a percentage of the franchisee company.

NO

  • You should consider adopting a Development Structure

A Development Structure allows you to grant a third party (i.e. a Developer) the right to exploit a designated territory by opening Outlets of your franchised business and/or providing your services themselves. Developers therefore need to have considerable financial and other resources. We can advise you further regarding this structure if necessary.

There are two ways that you can adopt the Development Structure:

  1. You can enter into a Development Agreement with the Developer which incorporates both the development schedule/targets and provisions relating to the operation of the Outlets of your franchised business and/or the provision of your services; or

  2. You can enter into a Development Agreement with the Developer which sets out the development schedule/targets and a Unit Franchise Agreement which sets out the provisions relating to the operation of the Outlets of your franchised business and/or your services.

We can assist you with drafting the Development Agreement, the Unit Franchise Agreement (if required) and other relevant agreements as well as advising you on the legal and commercial issues that you will need to consider.

YES

  • You should consider adopting a Subordinated Equity Structure

A Subordinated Equity Structure is usually used together with a Development Structure where the Franchisor wishes to own a shareholding in the Developer. This may be for a number of reasons.  To facilitate this structure, the Franchisor and a third party create a new subordinated equity company and enter into a Subordinated Equity Agreement. The new subordinated equity company acts as the Developer and you (the Franchisor) grant the Developer the right to exploit a designated territory by opening Outlets of your franchised business and/or providing your services themselves.

We can advise you further regarding this structure. We can also assist you with drafting the Subordinated Equity Agreement and the Development Agreement and other relevant agreements and discuss other legal and commercial issues that you will need to consider.

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