Legal Implications of International Franchising

Franchising is a popular method of brand growth. By granting a franchisee the right to use the franchised brand’s intellectual property, business model, and support services, franchisors can rapidly grow their businesses without incurring the costs and risks associated with company-owned expansion. For some brands, a natural further evolution from national franchising involves international expansion. Cross-border expansion enables franchisors to reach new markets, facilitating global recognition. However, the legal implications of international franchising can be complex and vary significantly from one country to another. This article will explain several critical legal implications franchisors should be aware of when expanding their franchise internationally. 

1. Understanding Different Legal Landscapes

An international franchise must comply with the relevant laws and regulations of each country it operates within. The applicable laws and regulations vary significantly across different countries. 

There are no specific laws regulating the franchising industry in the UK. Instead, the sector self-regulates through professional bodies such as the British Franchise Association (BFA). However, in other countries, the laws and requirements franchise businesses must comply with vary. For example, in France and Italy, specific laws regulate practices within their respective franchising industries. 

2. Franchise Agreement Terms

If your franchise is already successfully operating in the UK, you likely have a robust existing franchise agreement. However, franchisors must tailor franchise agreements to comply with the local laws and regulations of the countries into which they expand.

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Some countries have strict requirements regarding the content of franchise agreements, while others have specific rules governing the termination of the contract. 

3. Disclosure Requirements 

Another particular aspect that can vary from country to country involves disclosure requirements. In the UK, franchisors do not have to give prospective franchisees a franchise disclosure document that reveals specific information about the franchisor and the background of the franchised brand. However, several other countries, including the Netherlands, the United States, and Canada, require franchisors to produce disclosure documents. 

4. Franchise Operations Manual 

Within the franchise operations manual, franchisors detail how franchisees will run their businesses. It should be a living document that franchisors update in line with changes in their franchise network. The business practices within the franchised brand may differ across different countries based on local laws and regulations. Therefore, franchisors may need to update the document or create country-specific operating manuals when expanding into new territories. 

5. Intellectual Property Protection 

Intellectual property protection is critical for franchisors, especially those operating internationally. This includes the following:

• trade marks; 
• patents; and
• copyrights. 

Franchisors should protect their intellectual property in the countries they intend to expand their brand. For example, prospective international franchisors can register their trade marks with the World Intellectual Property Office to protect them internationally or with the European Union (EU) Intellectual Property Office to protect them across the EU member states. 

6. Registration 

Some countries, such as China, Saudi Arabia, and Brazil, require franchisors to register their franchises with the government. Typically, this registration process involves submitting the franchise agreement and disclosure document for approval. Determining whether you need to register in a particular country is crucial, as not doing so can result in significant fines. 

Key Takeaways 

International franchising involves navigating a complex legal landscape. Franchisors must know the legal implications of franchising in each country they intend to operate. They must take steps to ensure compliance with local laws and regulations. Experienced legal professionals can help mitigate the risks associated with international franchising and enable successful global expansion.

This article has discussed several vital aspects that budding international franchisors should consider, including the following: 

• understanding the differing legal landscapes of the countries you want to expand your brand into; 
• adapting franchise agreement terms based on local laws and regulations; 
• adhering to disclosure requirements; 
• updating the franchise operations manual or creating country-specific manuals where there are differing business practices across locations; 
• protecting your intellectual property rights; and
• knowing whether you need to register your franchise with the local government. 

In addition to understanding the legal complexities of international expansion, franchisors should also consider the cultural and economic factors that can impact their operations. For example, understanding local consumer preferences can help franchisors tailor their products and services to the needs of their target market. Similarly, being aware of economic trends and exchange rate implications can help franchisors make informed decisions about where to expand and how to allocate resources. 

If you require legal advice about expanding your franchise internationally, LegalVision’s 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.