Franchising is an arrangement between two or more parties whereby the franchisor grants the franchisee a right to use their trademarks, production processes & business systems to come up with a product or service which meets particular specifications. The franchisee is to pay the franchisor a one-time fee, including a percentage of sales-generated revenue (also known as royalty), getting in return pre-tested products, instant brand recognition, tried & tested marketing techniques & personnel training.
Going back a long way, franchising has withstood the test of time, enabling commercial entities to adapt themselves to new technology challenges & changes in the modern economic environment.
Franchising as we know it first emerged in Great Britain as part of the tied house system. It worked as follows: breweries offered financial incentives to pub owners expecting the latter to provide them with an exclusive right to sell their produce in their drinking establishment.
Definition
As regards the definition of franchising in Great Britain, there is none. Hence, the following definition that is an adaptation of the one suggested by the EFF is currently used:
“A system whereby specific products/services are marketed & which has at its core continuous cooperation between franchising entities (hereinafter referred to as franchisors & franchisees) that are totally independent of each other in terms of their legal & financial status; franchisors provide franchisees with certain rights, while simultaneously imposing certain obligations on them, according to which the latter are to engage in their commercial activities according to franchisors’ vision & concept.”
Legal Framework
Great Britain has no specific laws on franchising. Nevertheless, franchisors holding BFA membership are required to ensure that the agreements concluded by them meet BFA’s Ethics Code.
Agreements signed between franchising entities are, consequently, regulated exclusively by contract law. While concluding franchising contracts, franchising entities should take into account other laws that may affect their contractual relations with franchisees:
- competition legislation
- employment legislation
- data protection legislation
- anti-corruption & money laundering legislation
Foreign Entities
Great Britain imposes no limitations on & isn’t prejudiced to entrepreneurs from other countries. Foreign investors & holders of ownership rights must abide by a relatively mild regulatory regimen & immigration-friendly legislation. Consequently, Great Britain frequently resorts to the help of domestic franchisors when it comes to concluding international deals involving franchising.
For instance, England & Wales have no limitations on the forms franchising entities can take. However, it is an unwritten rule for franchisors to engage in franchising activities in Great Britain through LLCs.
Types of Franchises
Because Great Britain occupies a fairly small territory, it is not typical for franchising entities to be formed on a regional basis. Instead, franchisees tend to get granted individual franchises. As regards foreign franchising entities, it isn’t uncommon for them to provide master franchises or conclude agreements that cover the entire territory of Great Britain.
Legal Limitations
British legislation imposes no limitations on the types of franchise contracts. As far as specific provisions in franchise contracts are concerned, they are usually governed by competition law.
Great Britain has no requirements with respect to due diligence, either. Therefore, conducting franchise due diligence in Great Britain is simply a way of showing one’s good will.
Disclosure
Franchisors aren’t legally required to disclose any precontractual information. However, under BFA’s Ethics Code, they’re required to reveal specific information prior to concluding franchise agreements in England
Fees
Fees of franchisors aren’t limited by any requirements related to their terms or amount. Normally, franchisees must pay an initial fee which is followed fees paid on a regular basis & calculated based on a franchisee’s turnover.
Taxation
Great Britain has no particular tax regime applicable to franchising. Domestic or foreign franchising entities operating in Great Britain on a permanent basis are required to pay corporate tax on their profits. Stakeholders of franchising entities that hold British citizenship must pay taxes on dividends that they receive.
Resolving Disputes
Should there be any dispute or misunderstanding between franchising entities, BFA can help them resolve their differences through arbitration or mediation. Of these two ways of settling disputes between franchising entities only mediation is resorted to on a fairly frequent basis, while arbitration remains practically unused. The reason why mediation is favored over arbitration is because it’s not binding for both parties, and, therefore, no decision can be imposed on them till a binding agreement has been concluded. It also costs less than conventional litigation which makes it a fairly affordable way of settling disputes between franchising entities in Great Britain.
Foreign Courts’ Awards
Being a signatory to several international conventions, Great Britain is required to recognize decisions rendered by EU courts.
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