Article Franchiseplus: “Franchisors participate in franchisees” – dated June 3, 2020 – mr. AW Dolphin

Franchisors are increasingly participating in the business of the
franchisee. There are several advantages to consider for both the
franchisee as the franchisor. However, there are also several
legal subjects that are not always clearly visible. At the
setting up such a participation construction is important for both
franchisee as franchisor to understand the legal merits.

The reasons for a franchisee to participate by the
franchisor in the franchise business may be located
in the fact that external financing is difficult to obtain. For the
franchisor it can be an instrument to accelerate expansion
and to exert additional control and influence on the operation by
the franchisor. There is also an incentive for the franchisor
created to prevent the exploitation from failing.

In the case of participation by the franchisor in the business of the
franchisee, however, a lot of legal matters have to be arranged.
Often more is agreed than a simple agreement of
loan. It is important how the participation is shaped. So can the
franchisor to acquire shares in the franchisee’s business.
The intention may be that the franchisee borrows the money from the
franchisor pays off as quickly as possible and, as it were, grows into its own
franchise company, so that the franchisor is ultimately not a participant
is more and the franchisee is “stands on its own two feet”. Not always there
thought about the possibility that the law offers to different species
to issue shares, for example with different control rights,
or with various claims to the profit. The law provides a whole here
range of possibilities to make cooperation within the BV as flexible as possible
to make possible.

The possible flexibility requires that there should be clarity about the
different aspects of participation. The franchisor wishes
for example control in the franchise company to keep a grip on
the money lent. When and how should the (borrowed) money be
issued and is permission required from the franchisor? This is
particularly important if the loan from the franchisor would be repaid first
must be done before investments are made, for example. Which
does the franchisor have collateral on getting the loan back?
Can the franchisor own the franchisee’s franchise business?
completely take over if the money lent does not follow the schedule
relieved? And what if the franchisor doesn’t want that? These aspects are
often regulated in the articles of association of the franchise company and in a
shareholder agreement. Where and how things are arranged matters
great influence on its meaning and consequences. Furthermore, account
to be taken into account with the aspects regulated in the franchise agreement
are. Doesn’t the franchisor approve his own flesh as the franchisee
does not comply with the franchise agreement? And the franchisee may still be a member
of the franchisees association as the franchisor in the
franchise company? Case by case the questions will
should be viewed.

It seems that franchisor participation is becoming more and more common
prevents. However, it is also a source of conflict involving various
flats agreements should be legally established in order to do so much
possible conflicts.

mr. AW Dolphijn – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Want
you respond? Go to dolphijn@ludwigvandam.nl