Franchise and legal regulations


A franchise may seem like an easy way of operating your own business without all the administrative and legal hassle of setting it up. However, franchises can actually involve significant levels of ongoing franchise and legal regulation. Franchise and legal regulation does not stem from any laws or regulation, but rather from the franchise agreement. The franchise agreement is the document which establishes the contractual franchise relationship and sets out the rights and responsibilities of the franchisor and franchisee in the ongoing operation of the franchise. There are certain legal aspects of a franchise that you should be particularly aware of.

The franchise agreement generally imposes substantial ongoing fees on the franchisee payable to the franchisor. These ‘management service fees’ are usually calculated as a percentage of the sales revenue and are essentially royalties paid in exchange for the right to use the franchise formula and to receive the support and assistance of the franchisor.

The franchise agreement may be quite prescriptive on the operations of the franchise. For example, product and service standardisation can limit your creative freedom to operate and direct the business as you wish. The agreement will generally include geographical restrictions on your market, and restrictions on the way in which you can advertise and use the franchise trademarks.

The franchise agreement will often contain commitments to purchase stock or services from the franchisor. Such requirements can be inflexible and therefore impose a significant burden on the franchisee.

An important consideration is the limitations and conditions that franchise agreements typically contain on exiting the franchise. These terms and conditions can be quite strict and burdensome on the franchisee if you wish to terminate the contract early or to resell the franchise.

You need to consider all of these aspects before deciding to enter into a franchise. Legal information and advice from a specialist franchising solicitor can help you to make an informed decision and to enter a franchise aware of the associated commitments and restrictions.

If you would like to obtain franchise legal information and advice, Caven can put you in touch with a local specialist franchising solicitor free of charge. So, if you have any questions or would like our help in finding a local franchising solicitor please call us on 08001 221 2299 or complete the web-form above.

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