Franchise law deals with the business law aspects of franchising. The number of franchise companies in various franchise chains has steadily increased in recent years and there are often complicated business law issues that a franchise owner must take into account in their day-to-day operations.
Are you also thinking about franchising?
If so, there are a lot of things to consider, such as the fact that a certain amount of investment is often required initially. If you do not have your own capital, you will need to turn to external financiers, such as a bank. As far as possible, you should avoid guaranteeing the start-up’s debts. If this is unavoidable, you should at least ensure that your commitment is clearly limited.
Other important elements to consider include:
- Are you prepared to give others the transparency and control required of franchisees?
- How do you perceive those behind the franchise concept?
- You should also carefully research the concept in which you are considering becoming a franchisee.
- Consult several independent sources, not just the franchisor.
- Find out if there are other franchisees in other locations that you can get information from.
A good source for those considering franchising is to use the Swedish Franchise Association’s various checklists and advice.
Franchise business law – avoiding the pitfalls
Both franchisors and franchisees should carefully consider the law governing franchising. There are several pitfalls on both sides that you would do well to avoid from the start.
Considerations for those thinking of becoming a franchisee
As a franchisee, you usually have little or no influence on the content of the franchise agreement, but it is still important to have a lawyer or legal expert review the agreement before signing it.
What should you consider before choosing to become a franchisee?
- Is the time and place (location) right for this franchise concept?
- Are the franchise concept and underlying business idea viable?
- Are the contractual terms of the franchise concept reasonable and fair and can you fulfill your obligations as a franchisee?
- Does the franchisor provide sufficient support and training to you as a franchisee, both at the beginning and afterward?
- Are the conditions in place to run the business profitably?
What should you consider as a franchisor in a franchise chain?
As a franchisor in a franchise chain, there are many things you need to consider when thinking about taking on a franchisee.
Are you sure that:
- The contents and terms of the franchise agreement are clear, unambiguous and legally correct?
- The prospective franchisee can fulfill his/her obligations as a franchisee.
- The prospective franchisee is capable of running the business profitably?
- The prospective franchisee is really in a position to meet its financial and legal obligations to you as a franchisor?
It is also important to be as sure as possible:
- That the prospective franchisee is really the right person to bring into your concept?
- That he or she will manage your concept in the best possible way, for example by delivering services and products that meet your standards and by treating customers and employees according to your core values.
- That the prospective franchisee will be able to be the face of your business in their locality or neighborhood, representing your concept in the best possible way and contributing to your reputation.
There are several examples of franchises taking on a franchisee who then fails to meet their financial and legal obligations to the franchisor.
A franchisee who misbehaves with customers or employees can do a lot of damage. If the franchisee misbehaves, it affects not only its own business but also the reputation of the entire franchise chain.
Advantage Law Firm helps both franchisees and franchisors.
Our lawyers provide ongoing advice to both franchisees and franchisors in various franchise chains in Sweden. Contact us if you have questions about franchising or other issues related to franchise law.
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