Legal aspects of franchising |
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| Introduction |
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Franchise agreement will be useful reading for anyone thinking about buying a franchise as well as business owners who want to franchise their business. It explains the terms that should be included in your franchise agreement, including intellectual property rights, what happens of the franchise relationship ends and how to protect you.
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| Legal steps required before you start |
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| To buy a franchise, you will have to: |
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- Sign a confidentiality agreement (sometimes);
- Enter into a deposit agreement and pay the deposit (possibly non-refundable so be warned);
- Find a franchise agreement, read it, understand it and then negotiate the terms with the other party and finally, sign it.
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| The agreement |
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Any legal agreement should seek to protect the benefit of all parties involved, including intellectual property and it should accurately reflect the terms agreed. There are no acts of parliament governing franchising so careful negotiation between the parties is paramount.
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| Contents of the agreement |
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| If you are a franchisee, try to ensure that the franchise agreement makes sure that the franchisor: |
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- Trains you and your staff;
- Supplies goods and or services;
- Is responsible for marketing, advertising and promotions;
- Assists in finding suitable premises and helps to fit it out;
- Provides management and accounting services.
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| If you are a franchisor, try to ensure that the agreement makes sure that: |
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- You can easily monitor the performance of the franchisee;
- Protects you from unfair competition;
- Protects your intellectual property;
- Restricts the franchise regards exercising the rights granted to him by you.
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| Intellectual property issues |
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| In a franchising situation, intellectual property includes: |
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- Trade names;
- Goodwill;
- Methods of production;
- Copyright;
- Confidential information.
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| Trade names and trade marks |
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Franchisors should ensure the trade name and trade marks are sufficiently protected by the franchise agreement. But of course the reason the franchisee is going ahead with the business is that in most cases, the goods or services are brand named- they are a known quantity to customers. Therefore it is also in the franchisees best interests to protect the intellectual property from third parties. |
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| Termination |
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Franchise agreements should be set up so that they subsist easily over a long period of time. All system and procedures should be in place so that the parties are clear of their obligations and rights. That way, there is only a very small space for error or miscommunication. When a franchise relationship cannot be resolved however, you will need to end it. It could end for a number of reasons including:
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- Breach by the franchisee;
- Breach by the franchisor;
- The fixed term has ended and the franchisee decides not to renew;
- The franchisee sells the business and a new franchise is granted to another party;
- Both parties agree to end the relationship.
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A well written legal agreement, such as those available at Net Lawman, will ensure that the agreement provides for what happens upon termination, for any of the reasons above. So the parties will know how to act and what is expected of them. This ensures as smooth an end as possible. Of course the franchisor will want to protect his business, trade secrets and know how and the franchisee will want to maximise his returns.
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| Termination clauses often include provisions to ensure: |
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- That existing customer contracts are transferred smoothly;
- Trademark licenses and so on are cancelled officially;
- The décor of the premises is changed;
- Advertising and packaging materials are returned to the franchisor;
- Stationary, literature, and all other promotional materials associated with the franchise are returned to the franchisor;
- Operation manuals are returned;
- The system is promised not to be used by the franchisee;
- Copyright material is not used by the franchisee.
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| Many of these are dealt with in what are called ‘restrictive covenants’ or ‘non-competition’ clauses. |
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| Links of other Articles |
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