The devil is in the detail when it comes to franchising overseas. Shanna Schulze guides you through the facts you must check and the details you must get right
Franchising internationally has become a very popular means of expansion for many franchise brands.
Cloud computing, an abundance of useful and cost-effective applications, and the ability to easily source products globally has made it so that even businesses that do not franchise in their home country or region can use franchising as a means to expand internationally.
Franchising internationally for a business can be a very complex undertaking, especially when the business is generally new to the world of franchising.
Franchising internationally for an existing franchisor is less daunting because many legal and regulatory concepts will be somewhat familiar in most countries or regions, but no matter the comfort level of a business with franchising, international expansion requires significant business and legal planning, as well as a long-term financial and emotional commitment to making the venture successful.
It is always advisable to consult with a local franchise attorney that has experience in international franchising as well as special-foreign franchise counsel in the target country.
Legal work
Furthermore, it is common for a business’ local franchise counsel to perform a majority of the legal work needed for the venture while special-foreign franchise counsel reviews the work and opines on location-specific concerns.
It is also advisable to seek foreign tax and accounting counsel to ensure that the method of accounting is appropriate and tax filings sufficient, and to seek special privacy counsel to ensure that a business’ privacy and security policies and procedures are adequate.
Unfortunately, a franchisor’s mistake related to the respective franchise, business opportunity, tax, or privacy laws can result in business-ending penalties, so ensuring compliance in those areas is almost as important as having a viable contractual structure.
Below are a few lists of some the most basic legal concepts and concerns that a franchise brand should consider related to an international expansion using a franchise-strategy.
These lists should be thought of as a general starting point related to any international franchise transaction rather than a checklist of documents to be crafted or issues to be considered.
There are many ways to pursue a business expansion and the one that will be most successful for a business will be the one that most effectively applies the law to that business’ unique set of opportunities and circumstances.
Business Structures & Associated Contracts:
Master Franchise Agreement/Sub-franchise Agreement
Area Development Agreement
Area Representative/Development Agreement
Pilot-Unit Agreement
Single-Unit Franchise Agreement
Multi-Unit Franchise Agreement
Joint Venture Agreement
License Agreement
Distribution Agreement
Target Country Laws & Regulations:
Formation & Use of Business Entities
Business Opportunity Laws
Franchise Sales Regulations
Franchisor/Franchisee Relationship Laws
Technology Transfer Laws
Dispute Resolution Laws
Intellectual Property Laws
Privacy Laws
Labor and Employment Laws
Tax Laws
Insurance Laws
Treaties:
1958 United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards
1971 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters
1980 United Nations Convention on Contracts for the International Sale of Goods
Berne Convention
Madrid Protocol
EC Block Exemption Regulation
Tax Treaties
ABOUT THE AUTHOR
Shanna Schulze is Corporate & Franchise Attorney for the Law Firm of Shumway Van
