International franchising is undoubtedly rewarding and lucrative, but hard to manage. They can easily be affected by disputes and misunderstandings between the trading partners. Legal disputes are common in all businesses, and international franchises are no exception.
A franchising attorney can help to resolve an international franchise dispute. The attorney acts as the go-to person when disputes arise hence, avoiding costly litigations. International franchises are governed by International franchise laws.
How Can an International Franchising Lawyer Help?
As stated earlier, international franchise law is used to govern and regulate international franchises. This law addresses various aspects of franchises, such as the offer, acceptance, legal relationships, and the terms of sale. The following points should be considered before investing in an international franchise:
- Are there foreign interests in the franchise?
- How to secure intellectual property in international franchising.
- Legal requirements in the preferred country of expansion.
- Is the brand competitive enough?
The legal documents required, by law, for international franchising include:
- The franchise disclosure document.
- Franchise agreement.
International Franchise Agreement
International franchise agreements are binding and legal documents that regulate a franchise. The contents of a franchise agreement include:
- Expectations of the two parties.
- Obligations of the transacting parties.
- Permissions for the franchisee.
- Operating restrictions.
- The franchise fee that’s payable by the new investor.
- Trademark details.
How long can International Franchises Operate?
In most cases, international franchise agreements run for over 25 years. Most franchise agreements include a renewal clause. Perpetual franchise agreements are considered binding and legal in some states. Although the agreement may renew automatically, indefinitely, or after the end of an agreed period, the franchisee cannot terminate the original agreement. He/she should wait for the expiry of the agreed period or transfer ownership to interested third parties. Otherwise, they are liable for liquidated damages.
Common International Franchise Disputes
In some scenarios, the franchise agreement provides a way to resolve disputes in the event they occur. It may be through mediation or arbitration. If dispute resolution mechanisms haven’t been highlighted, the franchisee and franchisor may initiate the mediation process on their own.
Unfortunately, mediation doesn’t always resolve some complex disputes. If mediation is unsuccessful, the disputing business partners should contact a franchising lawyer. Common disputes in a franchise include:
- Territorial disputes.
- Franchise agreement disputes.
- Disputes on franchise termination.
- Financial disclosure disputes.
- Compliance disputes.
Types of Franchising Business Models
The common business models in franchising include business format, product, manufacturer, and master franchises.
80% of American franchise businesses run on the business format model, where the investor establishes a business using the name of a successful brand, such as McDonald’s. The franchisor should provide regarding planning, operating, documenting, branding, and marketing. In exchange for the support, the franchisee pays an initial franchising fee and recurring royalties to the franchisor.
Product franchising is the oldest type of franchise business model. Product franchises allow dealers to distribute goods for a manufacturer. The investor pays a fee to sell and market trademarked goods, come directly from manufacturers. In some agreements, the franchisee doesn’t pay a fee but is required to meet
The franchisee gets exclusive rights for the production and distribution of a product in a geographical area. Manufacturer franchises are common in the food and beverage industry, although they’re also ideal for the manufacturing industry.
In this model, an investor, the master franchisee, uses the products and trademark of a well-established business, the franchisor. The master franchisee is tasked with recruiting, training, and supporting the new members recruited. The rewards of a master franchisee include 50% of the franchise fee and royalties paid by recruits.
Qualities of a Competent Franchising lawyer
Strictly speaking, any lawyer can be a domestic franchise lawyer. However, due diligence should be done when hiring a franchise lawyer. A competent franchise lawyer should possess the following bare minimums:
- Widely experienced.
- Good reputation.
- Be a qualified lawyer.
- Should be committed and dedicated to franchising.
Franchise Agreements Best Practices
Seek Legal Counsel
Most people do not involve a lawyer for franchise disputes when establishing a franchise. Without any legal counsel, either party can easily be short-changed or taken advantage of.
Shouldn’t be Ambiguous
Be clear on the franchisors’ obligations from the word go. May means that they’re not obligated to do something but shall indicate obligation on their part and they’re expected to fulfill the same.
You should enter the franchise knowing that the success of the franchisor is not a guarantee that you’ll equally succeed. Working hard is the only guarantee for success.
Franchises should benefit the two parties, the franchisor, and franchisee, and one of the two should have an unfair advantage over the other party. This can only happen when investors involve a franchise lawyer before putting their funds where their mouth is. Also, read Getting your Accident Claims in Alaska.