When considering signing a franchise agreement, you should know well what it is. Our experience advising in Spain to domestic and foreign franchisors and franchisees, evidences many problems that could have been prevented by following some simple recommendation and seeking the prior expert advice. Note that as a prospective franchisee you are before an important decision. Much of what will happen later in the way you manage your business and interact with the franchisor depends on the decisions you take at this time. Please seek the advice with an independent expert. You will only get great benefits.
Based on these ideas, we present an outline of what seems more relevant. If you want to deepen, it is available a more detailed and updated explanation which can be downloaded free here (* please see the legal disclaimer at the end of the post *).
1. What is a franchise and what to consider in advance.
Before signing a franchise agreement, please note:
a). The franchising is a commercial form for the sale of products or services that involves the transfer of a successful formula. This includes knowledge, technical or marketing assistance and the use of a trademark (which is usually called “know-how”).
b). Before signing any contract, or before handing over any money, it is imperative that the franchisee receives a pre-contractual information on the essential elements of the franchise. This should include data from the franchisor, the franchise, the market concerned, the network of stores, etc. It may contain further economic information that shall be verified. The attached document has further details.
c). The franchisor must be registered in the Franchisors’ Registry. As a potential franchisee you can verify it here.
2. What requires a franchise
When signing a franchise agreement and while negotiating please take into account the following:
a). Apart from trade and economic issues, the potential franchisee should consider:
– That the pre-contractual information received is complete. Sometimes, we have observed that supplied information is standardized without any particularity and without meeting the legal requirements.
– The franchisee is registered in the Register of Franchisors. There you can see his experience, the number of shops run and any other relevant information.
– That the trademark is duly registered on behalf of the franchisor or, at least, that he has the faculty to transfer it to third parties (the franchisee). For Spanish and EU brands you can consult for free the availability of a specific trademark at the Spanish Patent and Trademark Office.
b). The franchise agreement is a complex contract which includes multiple obligations and rights of the parties. It is usually previously drafted by the franchisor and quite frequently it is not possible to introduce many changes. It is highly recommended therefore to be analysed in detail by an expert to know what obligations are agreed. It is not advisable to sign forms or pre-established drafts you can find in the Internet: they will not reflect your real interests because they have not taken into account your concrete situation.
c). In many cases, moreover, there will be a master franchise agreement or master franchisee: the person you will sign with. This is frequent in contracts with foreign brands and also requires special care because this will involve both the brand owner as the manager of exploiting the franchise in our country (Master Franchise).
3. What it is not a franchise agreement.
It may occur that you are considering signing a contract called “Franchise” but that does not meet the minimum conditions to be such an agreement. Note the following:
a). It is not a real franchise agreement (even if the agreement receives that name) the mere authorization to use a trademark. And this is also valid, even if the establishments with a certain similarity.
b). It is not a franchise agreement the mere exploitation of a business idea. The franchise agreement requires something more: a set of elements such as know-how, a business plan, a commercial or technical assistance, a common brand, etc.
c). Beware of those who want to exploit an idea that has not been previously experienced by themselves in a business. If they have not previously verified that idea, it is difficult to convey any “know-how”.
d). And finally, there is not a franchise agreement when there is only an authorisation by the manufacturer to sell their products. This is also true, even if this authorization is an exclusive one.
LEGAL DISCLAIMER. This scheme is presented to help you as a first approach. Please do not rely on it alone to make decisions because it is not a full legal advice for you. The use of attachment is free. It is reproduced with permission by Law Business Research Ltd. It was first published by Getting the Deal Through: Franchise 2016. If you want additional information visit www.gettingthedealthrough.com.