If you consider registering a company for an international franchise in the UK, namely the Joint Venture Company (JVC), and you think that you can realize it alone, without a local partner, then it might happen that you regret about this decision in the long run. Here’s why.
Below you can find just a few reasons why a franchise company would want to establish a joint venture with a foreign partner in the UK to develop its business internationally:
- First, the local market which looks mainly like terra incognita to you. You can face difficulties when registering a company in the UK, which will then become a subsidiary oversees, without a reliable partner who knows the environment well;
- Second, reliable financial resources will be needed to adapt your business model before launching franchising abroad;
- And last but not the least, you might need to have a closer look at the franchisee at the start, to ensure the successful implementation of the franchise network in the future.
Thus, the above examples show that to set up a joint venture with a local partner in Britain looks much better in comparison with other options like, for example, to act as an independent franchisee, or set up a subsidiary in the UK as a company for the development of a franchise abroad.
Many companies are reluctant to even think about setting up a joint venture for franchising in foreign jurisdictions due to legal uncertainities, and it’s quite understandable. Meanwhile, if the structure of the transaction and legal arrangements are developed carefully and correctly, the shortcomings can be overcome and mistakes avoided. IQ Decision UK will assist you in your franchise transaction structuring in the UK or other requested jurisdictions.
International Franchise step by step
If you firmly decide to develop an international franchise network, the first step you should take is to obtain a professional advice on the choice of jurisdiction for the sale of franchises. You need to study such issues as:
- Local regulation on foreign investment;
- Market situation in requested jurisdictions;
- Local rules related to products or services that make up your core business;
- Local legislation on franchising relationships;
- Local labor law.
An issue of prime importance: find a foreign partner for profitable cooperation
In addition to choosing the appropriate jurisdiction to open a joint venture abroad, take your time to select the most appropriate foreign partner.
Before you start the process of finding a partner from abroad, you have to prepare for this responsibly, because it is the preliminary preparation that will largely determine the success in achieving your goals. At this stage, it will be necessary to collect information, assess demand and supply in the business segment of potential partners.
The following are approximate characteristics that a person must have for the role of a foreign partner in a company developing franchising activities abroad:
- Profound knowledge of the local market;
- Experience in the same business sector, namely the franchise sector;
- Strong managerial skills;
- The ability and willingness to act as a “cultural bridge” between two jurisdictions;
- Financial capability and stability.
As a rule, it is impossible to meet a candidate who one hundred percent satisfies all of the listed requirements. That is why you need time to evaluate all the qualities of the candidates one by one, and determine which of them are more or less relevant for each particular case.
Then, negotiations and the signing of the agreement are probably the most difficult stages of the pocess, even more complicated than finding a potential partner. After all, your goal is to sign a long-term agreement that will be most beneficial to you. Consider all potential objection you may face, as well as all possible outcomes. Someone prefers fast negotiations, someone slow and thoughtful, in addition, each culture has its own formalities that must be respected during negotiations.
The parties to the agreement will have to agree on contributions of each of the parties. The amount of contributions, as well as their value are essential, as it will have a direct impact on the assessment of the share of each partner in JVC.
A franchising company will contribute to assets related to its activities: trademarks, intellectual property rights and know-how (the intangible assets), as well as tangible assets necessary for smooth business operations.
How to protect valuable information?
The next important thing you need to consider is a non-disclosure agreement (NDA) for franchising purposes. A decision to conclude a NDA normally comes from a franchise company, and this is natural: who is more interested in protecting intellectual property and other confidential information?
The persons to whom this information will be disclosed, should be listed in the agreement — it’s a must!
In addition to the non-disclosure agreement, do not forget about drawing up a letter of intent or a memorandum of understanding. These documents are designed to declare the serious intention of both parties to discuss the terms of concluding a joint venture agreement and proceed with its implementation.
Certainly, you will not be able to start a company with several partners, if you did not sign a shareholder agreement where the share of each participant / shareholder will be determined. This document reflects not only the shares, rights and obligations of the parties, but provisions on the JVC functioning.
Finally, the shareholder agreement must envisage the worst scenario case. It means that it should include the termination of the joint venture clause, and the conditions for the separation of shares between partners.
To start a franchise business abroad requires time, costs and efforts, therefore it is essential to rely on experienced professionals who will assist you at all stages of the company set up, especially in a foreign jurisdiction. IQ Decision UK is ready to provide you with comprehensive legal support in international franchise of your company.