Franchising is a popular business model that allows individuals or companies to operate under the established brand and system of a larger business.
It offers a route into business ownership with the support and guidance of an experienced franchisor. At Moore Barlow, we help both franchisors and franchisees understand how a franchise works and provide legal advice to support long-term success.
What is a franchise?
A franchise is a legal and commercial relationship between the owner of a brand (the franchisor) and an individual or company (the franchisee) that agrees to operate a business using the franchisor’s name, trademarks, business model and ongoing support. This arrangement allows the franchisee to run their own business while benefitting from the guidance and reputation of an established brand.
Franchising typically operates under a licence agreement, which outlines the rights and responsibilities of each party. This contract will cover areas such as brand usage, fees, territory rights, training, operational standards, and the duration of the franchise relationship.
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The franchisor-franchisee relationship
Understanding how a franchise works starts with clearly defining the roles of the franchisor and franchisee. The franchisor is the creator and owner of the original business model, trademarks and systems. They are responsible for providing the necessary tools, guidance, and support to help franchisees replicate the business successfully.
The franchisee, on the other hand, is an independent operator who has purchased the right to use the franchisor’s brand and system in a specified territory. Although franchisees function as independent business owners, they must operate within the framework and standards set out in the franchise agreement.
The franchise process step by step
If you are considering buying into a franchise or setting up your own franchise network, understanding the process can help you make informed decisions. Here is a general overview of how a franchise works in practice:
Research and selection
Prospective franchisees begin by researching various franchise opportunities. It’s essential to assess the market demand, brand reputation, required investment, and ongoing fees. Once a franchise is selected, the franchisor will provide detailed information, often in the form of a franchise disclosure document.
Due diligence and legal review
Before entering into a franchise agreement, both parties should carry out due diligence. For franchisees, this means reviewing the terms of the agreement, speaking to other franchisees, and assessing the financial returns. For franchisors, it’s important to ensure the prospective franchisee meets certain standards and is a suitable partner.
Signing the franchise agreement
The franchise agreement is the legally binding contract that outlines the terms of the relationship. It typically includes the initial fee, ongoing royalties, duration of the agreement, renewal conditions, and mutual obligations. Legal advice is essential at this stage to ensure your interests are protected as the agreement is usually heavily-slanted in favour of the franchisor.
Initial training and setup
Once the agreement is signed, the franchisor will typically provide comprehensive training on how to run the business. This includes operations, marketing, product or service training, and guidance on using the brand assets. The franchisee will also set up their premises, recruit staff, and begin trading under the franchisor’s brand.
Ongoing operations and support
Franchisees benefit from continued support from the franchisor, which often includes marketing resources, access to suppliers, systems and software, training updates and business development advice. In return, the franchisee pays ongoing fees, usually in the form of a fixed monthly cost or percentage of turnover.
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Types of franchise models
There are several types of franchise structures, and understanding each can help determine which is the most appropriate for your business goals:
- Product distribution franchises – The franchisee sells the franchisor’s products, often with exclusive territory rights.
- Business format franchises – The most common model, where the franchisee adopts the entire model, brand and ongoing system.
- Management franchises – Ideal for those with business management experience, where the franchisee manages a team to deliver services, rather than doing so directly.
- Master franchises – The franchisee is licensed to recruit and manage sub-franchisees in a defined region or territory.
Advantages and challenges of franchising
Franchising offers a range of benefits but also requires careful consideration of potential risks.
Advantages for franchisors
- Rapid business growth with lower capital costs
- Motivated franchisees invested in success
- Brand expansion across new regions or markets
Advantages for franchisees
- Access to a proven business model and brand
- Reduced risk through support and training
- Marketing and operational assistance from the franchisor
Challenges to consider
- Maintaining brand consistency across franchisees
- Ensuring the franchise agreement is robust and fair
- Managing disputes or issues between franchisor and franchisee
The importance of legal advice
Franchising is a legally complex area of commercial law. Whether you are a prospective franchisor creating a franchise model or a new franchisee looking to buy into a brand, independent legal advice is essential. As specialist solicitors in this area, we can help you understand how a franchise works, identify risks, negotiate terms, and ensure compliance with relevant regulations.
At Moore Barlow, our commercial and technology team has extensive experience supporting franchisors and franchisees across a wide variety of sectors. We can assist with drafting and reviewing franchise agreements, protecting intellectual property, resolving disputes, and helping you establish a sustainable franchising structure.
Contact us
If you would like legal advice about franchising or have questions about how a franchise works, please get in touch with our experienced commercial and technology solicitors. We’re here to help you take the next step with confidence.
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Discover how our expert commercial and technology lawyers can help you.
Contact our commercial and technology team
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