The key aspects to consider before acquiring a franchise

July 4, 2023 Arvin Bissessur

Are you planning to acquire a franchise in the UK?

Acquiring a franchise can be an attractive business opportunity, but it is important to note that the benefits of acquiring a franchise can depend on the specific franchise and industry. Conducting research, evaluating the franchise’s track record, assessing suitability and alignment with the franchise’s concept, and having the right legal advice on any contractual documents and franchise agreements are crucial in determining whether acquiring a franchise is the right choice.

In this article, our franchise solicitor has covered the key aspects you need to consider before acquiring a franchise.

What is a franchise?

A franchise refers to a commercial arrangement between two parties: the franchisor and the franchisee. The franchisor will grant the franchisee the right to operate a business using the franchisor’s established intellectual property and business methods. The franchisee will operate the business according to the franchisor’s established system. In return, the franchisor will be paid fees or royalties for the franchisee to use the franchisor’s intellectual property, business methods and to receive ongoing support.

This model allows the franchisor to expand its business and brand through the efforts of independent franchisees, who benefit from established brand recognition and the proven business methods of the franchisor.

There are several famous examples of franchises in the UK across various industries, including McDonald’s, Anytime Fitness, The Body Shop and Starbucks.

How does a franchise work in the context of the law?

The relationship between a franchisor and franchisee is typically formalised by way of franchise agreement. While the specific terms may vary depending on the parties involved and the strength of their bargaining power, the franchise agreement will typically cover aspects such as the duration of franchise, territorial rights, fees and royalties, training and support to be provided by the franchisor, quality control standards, marketing and advertising requirements, and the terms for termination or renewal.

While English law recognises and provides legal frameworks for franchising, there is no specific legislation governing franchises. Instead, franchise agreements are typically governed by the principles of contract law, in addition to any industry-specific regulations and guidelines.

Are there any considerations to be made before engaging a franchise?

Engaging a franchise will typically involve several steps and considerations, generally including the following:

Research and Due Diligence: While conducting thorough research and due diligence to identify suitable franchise opportunities, a potential franchisee should consider factors such as the reputation of the franchisor, the success and profitability of existing franchise locations, industry trends, and the level of support to be provided by the franchisor. Much of this information should be included in the franchisor’s disclosure documents.

Initial Application: After formally expressing interest to acquire a franchise, the potential franchisee may be provided an application form to complete. This form will likely ask for details of the franchisee’s background, financial capability, and business experience. Some franchisors may also require a franchisee to attend an interview.

Evaluation and Legal Advice: A franchisee should seek professional advice from a lawyer or franchise consultant, in particular when it comes to reviewing a proposed franchise agreement, disclosure documents and any other legal documents to ensure the rights and interests of the franchisee are protected. An experienced professional may be able to evaluate the expected financial projections provided by a franchisor and assess the associated risks and benefits.

Negotiation of terms: As mentioned before, the terms of a franchise agreement may vary based on the bargaining strength of the parties, but the franchisee should always consider discussing and potentially amending clauses that may not be favourable to it. It is advisable to have legal representation during this negotiation process.

The process of acquiring a franchise will vary on the specific facts applicable to the franchisor and the industry that it is based in. In any event, it is important to note that franchise acquisition requires careful consideration, due diligence, and legal guidance to ensure a successful and mutually beneficial relationship between the franchisor and the franchisee.

How can we assist?

Our legal team is made up of experienced lawyers and M&A advisor who can assist you in acquiring a franchise. We assist our clients with a wide range of franchising matters, including:

✔️ drafting and reviewing franchise agreements, disclosure documents and contracts;

✔️ providing advice on franchising and licensing;

✔️ advising on intellectual property rights and franchise brand disputes;

✔️ advising on how to protect trademarks and other intellectual property;

✔️ advising on business plans, including how to structure franchise business operations;

✔️ resolving disputes, breach issues and terminations; and

✔️ advising on employment matters for the franchise sector.

Get in touch by scheduling a discovery call with one of our expert franchise lawyers today.