Btob:
Franchising presents a very real opportunity for growth and survival in the current challenging economic environment.
It can be a highly effective business model but it needs care and understanding to function properly and avoid a disaster. David Munn, a franchise law partner with Gaze Burt Lawyers, recently gave the Business to Business team a quick lesson in becoming a franchisor.
The term franchise is often loosely applied to a plethora of different situations ranging from car dealerships to sports shops to mortgage brokering. Some see franchising as the ultimate business network and the best hope for independent business in a competitive environment. Others see it as not to be trusted. Still others see it as an opportunity to rapidly expand their business using someone else’s capital. This can be a distinctly attractive proposition when credit is tight and capital precious.
While there is no specific definition in law, franchising is based on a relationship between two participants: a franchisor (the person who creates the business opportunity) and a franchisee (the party who buys that opportunity). It is a format for doing business that gives a contractual right to use a person’s intellectual property, trademark, brand and developed system for running a particular business. Within this framework the specifics can be very strict or very loose with an entire spectrum of different levels of control.
“As the business is substantially dependent on the franchisor’s trademark and system, you have to look carefully at how the franchisor should expect the franchisee to run the system in the franchisee’s own business,†David told Business to Business. The degree of flexibility a franchisee has within a system will be regulated by the Franchisor. Read on…
