Legal issues when buying a franchise
Nick Strong - MD, Select Your Franchise
In the light of my recent articles on What is a franchise and Researching your franchise options, its clear that the most important thing a franchise system can offer its franchisees is its know-how. The franchisor’s intellectual property is therefore a closely-guarded secret only revealed to its franchisees, and you may be asked to sign a confidentiality agreement during your discussions with a franchisor.
When you buy the rights to operate a franchise, you will enter into a contract. The contract will be provided by the franchisor and will outline how your trading relationship will be governed.
The signing will not usually happen until after ‘due-dilligence’ steps have been taken (background checks, financial and otherwise) on both sides and it is agreed that both parties wish to proceed.
After completing the due diligence process, you should know whether you wish to proceed as a franchisee of the system you have been investigating or not.
Before signing the contract, check the following:-
- Is there a deposit to pay?
- What happens to the deposit if you do not finalise the contract?
- When will the training take place?
- When will you have to sign the contract and pay the balance of the franchise fee?
- When will you be in a position to trade?
- How will the franchisor help you lanuch your new business?
- What programme of support will be provided over the first 12 months?
The contract will outline what the franchisor agrees to do for you and what you will have to do for the franchisor.
All franchise contracts will be biased in favour of the franchisor – it is their intellectual property you will be using. It is a way of protecting not only their interesrts by the whole network’s interests too.
Once you have satisfied yourself that you have all the finormation you require to work with the franchisor, talk to your lawyer and lender to make sure you are in a position to sign, train, and start rading on the agreed timesalce with your franchisor.
Tags: franchise, franchise agreement, franchise buyers, franchisors, legal, nick strong
