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Setting up a franchise is an exciting opportunity to grow your business. However, there are critical legal considerations you must make when franchising your business in the UK. Understanding how the law impacts your franchise will ensure that you can run your franchise network successfully and according to the law. This article explains the critical aspects of the law that you must consider when you create a new franchise.
This handbook covers all the essential topics you need to know about franchising your business.
1. Draft A Franchise Agreement
There are a few critical legal documents that you must prepare when you plan to franchise your business. The franchise agreement is one of them. A franchise agreement is a contract that forms the foundation of the relationship between you and the prospective franchisees. It also details the rights and responsibilities of you and the franchisee.
The form that the franchise agreement takes depends on the franchise model your business adopts. However, it must account for different legal requirements. For example, the agreement cannot include clauses that restrict competition. This is because competition law prevents businesses from engaging in anti-competitive behaviour.
In addition to preparing a franchise agreement, you should also prepare and provide franchisees with a franchise operations manual. This will explain in further detail:
- how the business operates;
- how the franchise relationship will work; and
- all of the information needed for the franchisee to run their unit successfully.
2. Protect Your Business’ Intellectual Property (IP) Rights
Whether you are setting up a new business to franchise or if you are looking to franchise your established business, it is crucial to consider IP rights.
If you are setting up a new business to franchise in the UK, it is essential to consider whether the brand name and trade marks you wish to use are available. Searching the UK marketplace to check the availability of your chosen branding is crucial. If you use branding that is protected by trade mark registration, you would infringe on another business’ legal rights. As a consequence, the business could take legal action against you.
If you have an established business, customers and suppliers will recognise your branding and name. Branding is central to the identity of your business. Franchising your business means you will provide somebody else with the right to use your brand and trade mark. Franchisees will operate a business using your franchise’s name, logo, and products.
Intellectual property rights can protect your brand’s reputation. Therefore, it is important that you take time to familiarise yourself with your intellectual property rights.
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3. Support Franchisees Through Training
Setting up a franchise is not a completely hands-off experience. Franchising can remove some of the day-to-day management from your workload. However, once you have set up a new unit of your franchise, you will not just step back and let the business run itself. You will need to fulfil your obligations as a franchisor. This includes offering reasonable support to franchisees on a continuous basis throughout your business relationship.
The franchise agreement between you and the franchisee will include details on training and how you will offer support. The support you provide to your franchisees may include ongoing assistance with aspects such as marketing and access to the operating systems used within your franchise.
4. Understand Sector-Specific Laws
Some areas of law will apply to all franchises. These include:
- contract law;
- commercial law; and
- employment law.
Depending on the sector your business operates in, additional laws may apply. Many different industries are operating in the UK, and different laws are relevant to each one. For example, if your business is based in the cosmetic industry, your franchise must comply with the relevant laws and regulations of that sector.
5. Seek Legal Advice For Franchising
In the UK, there are no specific laws that refer to franchising or setting up a new franchise. The UK franchise industry is self-regulating. Because of this, many international business owners think of the UK as an attractive place to set up a franchise.
When it comes to your franchise and business actions, many different areas of law will be applicable. Therefore, you should seek legal advice when franchising your business. The law can often be tricky to understand. By seeking legal advice, you will ensure that your franchise is complying with all relevant laws.
Key Takeaways
When franchising your business, you should:
- create critical legal documents for your new franchise venture, like a franchise agreement and operations manual;
- protect intellectual property rights, including the rights of others and those of your existing business;
- plan the training and ongoing support you will provide to franchisees; and
- consider specific laws that are relevant to the industry your business operates within.
If you need legal advice about franchising, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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