Unlock eSignature Licitness for Franchise Contracts in the United Kingdom

How to eSign a document: e-signature licitness for Franchise Contract in United Kingdom

hi everyone Welcome to our webinar on how to franchise your business in the UK my name is harmanjot I'm an associate in legal Visions corporate and Commercial team I'm joined today by my colleague Paul who is a senior associate and our franchising team before we begin a couple of quick housekeeping items you'll receive a recording of the webinar at the end so no need to frantically take notes there's a little chat box for you to submit your questions and we'll answer them at the end and following the webinar there will be a little survey that will pop up on your screen we'd really appreciate it if you could take a couple of minutes to fill this out so that we can make sure our webinars are useful for you also all attendees are eligible to receive a free consultation with us to discuss how we can help you with your contracts or any of your legal needs um or or with your franchising plans as well so to request your free consultation provide us with your contact details in the survey that appears at the end of the webinar let's get on with it today we'll be discussing some commercial questions to think about when considering franchising how you should structure your franchise trademarking and IP protection your systems and processes your operations manual ensuring your contracts are suitable we'll briefly also touch on what you need to think about when it comes to the gdpr and finally we'll have a chat about what to include in your franchise agreement at the end of the webinar we'll answer some of your questions so please submit them through the chat function and we can get to them at the end we've got to get a lot to get through today so I'm going to hand over to my colleague Paul who will speak about what you should think about if you're considering franchising thanks hmy so to begin becoming a franchisor quite often starts with asking yourself a number of questions about your business franchising isn't suitable to every business model and a good franchise system is one that is well thought out in advance let's look at some of those questions now firstly is my business model distinctive and replicable this involves thinking about whether your business model would perform just as well in a completely different location with completely different people leading it we always suggest you trial a second location to test this idea if a manager can replicate your success by following your model this is a good indication that your business is suitable for franchising as it's not heavily reliant on a particular person or location demographics secondly will I be able to manage train and support a franchise Network operating a franchise requires franchise to Pivot into a new kind of role a training and management role training and support of franchisees is both essential and time consuming and the time involved should not be underestimated the best franchise systems are those that have a clear and learnable system and invest in training retraining support and growth of their franch es thirdly do I have the relationships with suppliers manufacturers Etc that can support my growth it's essential as a franchisor that your suppliers can actually Supply your network franchise ORS are well placed to Source quality products at cost effective rates and this is essential for your franchisees who can then focus on growth if the answers to these questions are no or show you that more work needs to be done this is often a good thing it's much easier to take stock plan and revise before you have a franchisee then after they're on board a franchise consultant can be a great asset to you for these kinds of feasibility questions early on I'll now hand over to hammy who will take us through the preferred corporate structure for a franchise thanks Paul so most businesses particularly ones that have grown and are starting to think about franchising will generally be operating using a sing Single company structure for franchisors and also for other businesses generally we recommend a jewal or multi- company structure this allows a franchising business to separate out its assets and ensure that the moving parts of it its business are protected should something go wrong so in this structure there's typically a holding company at the top that holds valuable assets and then one or more operating companies which enters into the contracts this is particularly important for franchisors to ensure that their intellectual property is protected as that is the biggest asset that the franch franchisor has and the IP often determines the value of the franchise Network so what this will look like in practice for a franchise or is as follows a holding company to own the trade marks and other intellectual property like your operations manual a company to act as franchise or to enter into the franchise agreements with franchises if the business operates from a premises a separate leasing company to enter into the leases and if you intend to continue operating your flagship store your or your first franchise yourself then a separate operating company to run that business with this structure the holding company should not trade with or enter into contracts with any third parties and this is so that that valuable IP is protected and kept completely um alone if something does go wrong the franchising company's primary purpose will be to enter into franchise agreements with the franchises the franchising company generally will not have any assets so if there is a dispute with a franchisee for example and the franchising company is sued there will be no assets put at risk and and the rest of the contracts continue as they are similarly the leasing company's sole purpose will be to enter into leases that will be used for the franchise business the leasing company will not have any assets so that if there is a dispute with the landlord such as outstanding rent and the leasing company is sued there will be no assets put at risk and the leasing company can be wound up if necessary and again for the operating company its sole purpose will be to continue operating the flagship store and by separating this out you ensure that if any other any of the other companies Inc liability the successful business that you're already operating won't be impacted by separating out the assets of the network into various companies you're protecting the longevity of your network and setting yourself up to succeed from the get-go it's also important to get this structure set up early on um to avoid any large tax bills liabilities in the future there's a little diagram on the screen show showing this structure as well I'm going to hand back over to Paul um who who's going to go into a bit more detail about this IP that we keep talking about thanks ammy now on to trademarks trademarks are important and they're even more important in a franchise system but what is a trademark a trademark is a word phrase or logo that is connected to used to identify and dis distinguish your business for example the Golden Archers and I'm loving it from McDonald's which we've all heard of or brand names such as Coca-Cola another Salient example in a franchise your trademarks will be your main brand and Logo but they could also include variations of this product lines or slogans that you use in trade importantly the name you picked for your business on company's house is not the same as a registered trademark and does not offer you you any protection for your brand this is a key thing that many businesses don't realize when they're starting out therefore we recommend all businesses whether you intend to franchise or not register a trademark for their brands so what's the importance of registering your trademark having a registered trademark gives you an exclusive right that helps prevent or take action against others who use your name and logo name or logo and try to benefit from your established reputation and Goodwill for this reason a registered trademark is valuable and since franchisees are paying to use it and to benefit from your established reputation and Goodwill franchisees want to know that you have registered and protected your trademarks a trademark registration lasts for a period of 10 years and is easily renewed at each 10year period if you did not have a trademark and someone decided to copy your brand you would be forced to rely on what are called common law protections which are far harder to enforce than trademark rights for example copyright and passing off in a franchise system the trademarks form part of your valuable intellectual property and quite often franchisees will actually look at whether or not you've register registered them before you sign up and now hammy will take us through the registration timelines for trademarks thanks Paul so this might not be what some of you want to hear but the trademark process is typically quite lengthy and can take about 4 months sometimes longer if you receive an opposition despite the lengthy application process however you can trade whilst your application is pending as your registration will be backdated to the date you made your initial application we do recommend only trading if there's only a low risk of your application being rejected this is because you don't want to launch with a specific brand spend time and money on marketing and building your brand only to have to Rebrand due to due to a rejection of your trademark application um your lawyers can definitely assist with completing a risk assessment before you make your application note that the trademarks need to be applied for in each country there's no automatic worldwide protection um so that there are Pathways that you can take to extend your local application but it is still additional applications that need to be made for additional jurisdictions that you wish to have protection in while other trade while trademarks are a clear form of IP that every franchise or should seek to protect it's also important to ensure that other forms of Ip are protected you can do this by having contracts in place with robust IP Clauses setting out who owns what IP and what licenses are being provided in respect of that IP considering whether other forms of registered protection apply to the products and services you'll be using in the franchise for example whether you can register a patent or a design R regularly monitoring the TAA trademark register in the market generally to make sure other businesses aren't encroaching on your intellectual property such as your registered trademarks your registered patent is also a good way of making sure you're protecting your IP and if you do find that there are any businesses encroaching on this IP you can enforce your rights against them such as by sending a cease and assist letter in respect of those marks Paul's now going to take us through um how you can go about consolidating and refining your systems and processes thanks Samy what are your systems and processes these are the ways in which your business currently operates and functions and refers to the ways in which your franchise network will operate an example of a system is a point of sales software that you might use in your business an example of a process might be how you normally deal with a new customer or lead on a daily basis when franchising it's important to ensure your systems and processes are clear and refined mind so that you can have consistency in your business model no matter who's running the business while some franchisors give thought to how the franchise network will run after they franchise it's important to consider this prior to the franchising process as it sets your network up for Success from the beginning here are some systems and processes you might consider streamlining before you franchise your point of sales software reporting such as sales data profitability or accounting obligations payment obligations ordering of products and equipment in the business customer relationship data and procedures employee onboarding and documentation for that onboarding software systems or internets for the franchise uh and related questions around the operations manual why is it important to ensure that your systems processes replicable we've touched on this but it's important to get these systems and processes right so they can be replicated in a franchise Network because the ultimate goal of a franchise network is to have multiple franchises who have taken your model and are equipped to replicated in a new location that replication is a lot easier for you and your franchisee when you have clear and established systems and processes for running one of your franchise businesses linked to this is the operations manual which we'll take a look at now so what is an operations manual the operations manual relates to what we just discussed regarding your systems and processes it's a document which takes all your knowhow on how to successfully operate your business and summarizes it in a clear and concise way it can be a physical document an electronic system or a combination of these why is it important the operations manual is crucial to the to your expansion as a franchise Network as it provides all your franchisees with the information they need to successfully replicate your business the operations manual is also highly confidential document it's essentially A playbook on all the key information required to understand how your business operates the operations manual will therefore contain a lot of information some of this and there's plenty PL more um would include how to handle customers including how to deal with customer complaints who your approved suppliers are or your approved product list information on how to onboard employees and often any employee policies that you use resources which the franchisee may require to operate their business or as um being part of or as being a franchisee how do you go about preparing an operations manual then to prepare one you should start looking at all the systems and processes you have in place within your own business some of those things we talked about earlier take what is usual information which is stored in your mind and put it down on paper the best operations manual are often drafted by franchise Consultants who will work with you by discussing these aspects of the business help you to summarize them all within a detailed and official operations manual most of the operations manual is not really a legal document Legal Information is what the franchise agreement is for however there may be some policies and information within the operations manual which have legal implications as such while you'll typically work with a franchise consultant to get a proper operations manual drafted you should have a lawyer review the sections that relate to your legal obligation some of those would be employment contracts privacy policies disputes notices a question we're asked a lot is when should you provide a franchisee with the operations manual given it contains uh incredibly confidential information we suggest following this approach for issuing it to franchises and it is better to issue it after they've signed the franchise agreement if that's possible so if the franchisee wants theer operations manual before they become a franchisee we'd suggest either only doing this after they've signed a non-disclosure agreement beforeand or by allowing them to only inspect the manual not to take a copy of it or the preferred method issue it to them after they sign their franchise agreement because the franchise agreement contains all the relevant restraints and confidentiality obligations they need to abide by um but it must be handed back when they're no longer a franch and now I'll hand back to hammy to look at your essential contracts thanks Paul so what are your key contracts in addition to the corporate structure your intellectual property your franchise agreement and your operations manual a great franchise system relies on all of its contractual relationships and how those filter down to its franchises we always suggest new franchisors undertake a review of all of their own contracts as part of the process of consolidating and writing their operations manual these contracts form part of your systems and processes some things to think about do you have adequate employment agreements and employment policies that your franchisees could use will your contracts with preferred suppliers allow you to grow into a large franchise Network do you have favorable terms with these preferred suppliers or do these contracts need to be renegotiated do you have data protection policies that comply with the gdpr do your existing leases allow you to underlet to a prospective franchisee these contracts underpin the operation of your franchise Network and therefore the operation of each individual franchisee where they are being relied on not only do they provide a strong road map for growth through consistency but they also show franchisees that you are invested in their success further a review of these documents also highlights whether there are any IP gaps being situations where the IP you rely on is not properly assigned to you or capable of being used by you under existing contractual Arrangements this materially affects the value of your franchise model as if you don't own your IP you can't license it to your franchises having a lawyer review advise and redraft these documents as required is essential to Growing successful franchise and it's something certainly something that should be considered before you take on franchisees I also want to quickly jump and have a quick chat about gdpr considerations um it's quite a niche area but it's something that's quite important um to to all businesses franchise laws must ensure they comply with data protection laws when handling personal data this includes when they collect personal data such as names and addresses of franchises but also when they have access to End customer personal data such as through customer databases from their franchise Network as a franchise or it's not sufficient to leave gdpr compliance up to your franchises like all other areas of your business you should have Pro processes for your franchisees to follow in terms of how personal data is collected stored and used if you expect your franchisees to share personal data with you for example for marketing purposes you need a lawful basis for sharing that information it's also important to consider which situations you are a controller in and which situations you would be considered your franchisees processor as this will determine your obligations and respective handling the personal data that you receive you also need to have a think about who is responsible for handling any data subject requests that you receive that is requests from individuals in respect of their personal data held by the business if the franchise operates from a centralized website that's handled by you it's likely that a customer may reach out to you to exercise their rights under the gdpr but you may require the assistance of individual franchisees to respond to those requests so it's really important to set out uh in advance what the process is so that you can ensure that your franchise Network as a whole is compliant with the gdpr and who is resp responsible for what regulatory bodies impose large fines on businesses that fail to comply with their data privacy obligations so this is an important area for franchise ORS to consider in the context of their Network before they start getting set up we've set out on the screen some things you need to think about when it comes to your data protection obligations your data protection procedures will form part of your systems and processes and should be set out in your operations manual I'm going to hand back over to Paul who's going to run us through franchise agreements thanks ammy the one that we all think about what is a franchise agreement a franchise agreement is a lengthy document that governs the key legal terms between the franchise or and the franchisee it sets out the rights and obligations of each party it also links with the operations manual to define the relationship between you and your franchisees the two documents are connected and franchise Agreements are drafted so that a breach of the manual is is a breach of the franchise agreement so what should you think about when you're preparing your franchise agreement as we've touched on the licensing of your intellectual property the broad purpose of the franchise agreement is to provide your franchisees with the right to use your intellectual property and replicate your business model therefore there needs to be a license of that IP this IP is generally being licensed for a fee so you also need to have a think about what fees the franchisee will need to pay you if you as the franchisor are retaining certain obligations for example marketing for the franchise Network you should also consider what if any Financial contributions you're going to require the franchisee to make towards this also as we touched on earlier your operations manual contain a significant amount of confidential information and in the wrong hands could be extremely damaging to your growth plans therefore you'll want to ensure that all of your intellectual property including the operations manual is protected under confidentiality Provisions further franchisees are typically exposed to a large amount of sensitive business information so it's quite common for franchisors to include during term and postterm restrictions on other businesses the franchisee might operate or clients they've worked with finally many franchisees rely on premises to service their customers so it'll be important to think about how the franchisee sources those premises or maybe you do this for them and what fit out or design requirements they'll need to comply with and now I'll hand back to um hammy thanks okay so that concludes the main part of our webinar we've recently released a publication on buying a franchise which you might find useful that you can download it by accessing the handout panel of this webinar or by scanning the QR code on the screen we also have an upcoming webinar that might be of interest to you on buying a business uh achieving success while minimizing your risk you can register for this at the link on the screen if we move on to the next slide we're going to answer your questions shortly while you submit them we'll take a minute to tell you about our membership legal Visions membership is a costeffective Al alternative to the expensive hourly rates you experience with other law firms for an affordable monthly fee you receive cost certainty and all-inclusive legal services including unlimited document drafting reviews and amendments unlimited legal advice consultations with our team of lawyers and unlimited domestic trademark applications um which is going to be key for all franchise networks it also means that we can draft your franchise agreements and individual franchise grants as a legal Vision member you won't worry about the cost of lawyers ever again think of it as having your own in-house legal council we'll take care of all the business's usual legal work so you can focus on running your business to learn more about the membership request a free consultation when the survey appears at the end of the webinar and now we're going to answer some questions that you've submitted um Paul I think the first one might be for you what percentage would you take from each franchise is there a standard rate thanks Amy yeah so this is a good question um so if we're talking about the percentage of gross revenue that the franchisee makes um there's not so much a standard rate but a rate that you typically see is between 5 to 8% of monthly gross revenue that's usually where we would that would be the starting point um and then we've got another question um um also do you deal with the legality for the contract between each franchisee hammy did you want to take that one yeah sure so we certainly assist with grants of franchise agreements to new franchisees and this involves tailoring your master agreement to suit the new relationship we issued that to the franchisee on the franchise all's behalf however we can't advise the franchisee at the same time the legal Vision me sorry legal Vision membership is a really good tool for this um because it's all it's an all-inclusive membership which means that you won't pay us each time we need to issue a new Grant to a new franchise Paul I think this one would be a good one for you how can I expand my franchise in nam Namibia Africa to operate in the UK that's that is a good question um and it's a tricky question so firstly if if you're already operating a franchise in a different country you can benefit quite often to talking to a franchise consultant here in the UK but what we'll see normally there's kind of two ways that franchisors will do this they'll either set up a new UK Branch um and then that that sort of entity would act as the franchise or the representative of the franchise or here in the UK um the other way to do it is to use what's called a master franchisee a master franchisee is a franchisee that's granted quite a large territory um but the the significant thing about the relationship is they're able to Grant franchises of their own territory to other franchises subf franchises um and that's a way that inter lots of international franchisors will think about expanding into other jurisdictions so some other questions um hamy do you want to take this one do you have any recommendations for who should hold the lease for a shop for shop friend franches sure so this all depends on how important the sites are to you as a franchiser and your appetite for risk if site locations are very important and you have greater buying power than the franchises to get a good deal we suggest that the franchise all takes the site for example if you're a retail Food Outlet who operates in shopping centers this gives you far greater control over the relationship with the landlord it also gives you greater control over things like the fit out if the site is less important you could let the franchise they enter into the lease and take on that legal responsibility themselves um so really it just depends on how much control you want to have over the site um now Paul how do you work out what length the franchise agreements should be so there is there is a bit of a strategy to this one um but it's it's not always clearcut the general rule is that the term of the franchise agreement should be long enough for the franchisee to make back its initial investment the technical term that that that's used in the indry industry is um that it's sufficient to amortise the franchisees costs um of that initial investment generally it's it's market Standard to see terms as five years five years is typically taken as the um the starting point for most franchises which is why most franchises that you'd see would be a 5-year Grant um but if the initial startup costs AR AR so expensive you can quite often see shorter terms and the franchisee will be recouping their costs in that shorter term we've just had a question come in um about whether you could replicate a UK franchise in Spain um now this it goes back to what Paul was saying a little bit earlier about replicating an African franchise to operate in the UK the same sort of advice applies um you would need to you might benefit from talking to a franchise consultant in Spain um but you can either like Paul said move someone over to Spain to replicate the business or engage what's called ma Master franchisee now it's important to remember that franchise laws do change from jurisdiction to jurisdiction so there may be additional laws that you do need to comply with um if you are looking to move your franchise into Spain um now Paul this one I think might be good for you if the franchisee is sued are you liable as the franchise or um thanks ammy so that's that's a complicated question um it depends a lot on how the franchise is set up but generally speaking franchisors are not seen franchises of franchisors are not generally their employees they're not generally their agents they're a separate legal entity so provided that the relationship hasn't become blurred in some way um generally speaking the franchise e is liable for things it enters into and the operation of its own business uh equally for the franchise all um so we've we've just had a question asking if we can repeat the expected percentage for the franchisee so yeah if if we're talking about the um the revenue perent percentage it's typically between 5 and 8% would be the starting point okay um and we've had another one come through can I require my franchisees to purchase supplies for my preferred suppliers um so yes you certainly can and this goes back to what Paul was saying about setting out your systems and processes in your operations manual your systems and processes include your preferred suppliers for example if you're Cafe you may want your franchisees to purchase their coffee beans from your preferred supplier so that the coffee across or your locations taste relatively the same requiring your franchisees to purchase from your preferred suppliers may also enable you to receive a greater discount for the network as a whole due to the increased volume of goods being ordered you do however need to ensure that your preferred suppliers are capable of Keeping Up With The increased demand and this is where the review of your contracts comes in um because there's no point requiring your franchisees to or order supplies from your preferred suppliers if they're not going to be able to keep up with that we've had another question comes through saying um is there a minimum Regional area that you would recommend so if we're if we're talking about territory mapping for franchisees it's something that so it's it's more of an area that a franchise consultant can help you with so there are Consultants out there that will do will assist you with specific territory mapping so you can kind of have a think about your growth plans you can have a think about how large territories might need to be the the sort of thing to think about is quite often franchisees will expect an exclusive territory and if you grant to large a regional area to a local franchisee first um it can interfere with your growth growth plans in the future because you'll have you'll have granted that territory and you can't necessarily carve it up into smaller pieces if demographics change um in addition to taking a commission or licensing fee from franchisees what additional fees can I require them to pay um so that's a really good question you can require them to contribute to your marketing fund for National marketing rental fees where you're taking on a lease on their behalf although these are usually set out in a separate lease and not your franchise agreement you can also ask for local level advertisement contributions software licensing fees or if you're providing any services or or products to to the franchise you can actually um ask for fees in respect of those as well um we've probably got time for one or two more questions um my trademark application was rejected can I still franchise my business if you've received a refusal or an opposition to your trademark it likely means that if you were to operate your business under that branding you may be on the receiving end of some strongly worded legal letters particularly where there is another business that is already operating under substantially similar branding they're now also hyper aware of your business and keeping an eye on your growth um as they've become aware of you because of your attempted registration as we've discussed at length in this webinar a franchise's IP is its highest valued asset it's what your franchises are paying you for and it's what determines the value of your franchise network if you're unable to secure the rights to your branding your franchisees are likely to see this as a risky investment because they could be required to shut down or Rebrand at any time if you've been unable to register trademarks in respect of your branding it may be best to Rebrand and then begin your franchising journey to give your business the best possible chances of succeeding and one one final question um this is a good one actually so I'm not sure if I need a franchise agreement or just a licensing agreement um so this this can be this can be a tricky one to work out um but A good rule of thumb is that Standalone licensing agreements typically suit situations where another business is using a product or service that you own the IP for you might have developed you know like a very specific product um they want to use that product in part of Their Own Line you can give them rights just to the to the IP in that product that would would be what a license agreement would cover it's not replicating your business so if someone is going to be operating a whole business that's like yours franchising is usually what will be the the method or the best approach okay I think that's probably all that we have time for today um thank you so much for your time after the webinar ends a little survey will pop up if you do have any more questions feel free to leave your contact details at the end of the survey um and our team can get touch and we can definitely have a chat about some of those questions we'd also really appreciate it if you left us any feedback on the survey thanks so much for joining us