How to choose a franchise
Working as a franchisee can be one of the most effective business models. However, this model also contains certain risks. If you choose an unscrupulous franchisor, all the benefits of this system will be neutralized. Therefore, the choice of a franchise is one of the key stages on which the success of the project depends. You can read about the risks to pay when choosing a franchise in this article.
- Legal risks when choosing a franchise
- Analysis of the results of intellectual activity
- Commercial risks when choosing a franchise
The choice of a franchise depends on many factors. Therefore, when choosing, you need to rely on certain criteria, and the franchisee must have information on these issues. Either the franchisor must provide all the data himself, or the franchisee must request it or find it in other sources. In some countries, for example, in the USA, this is the responsibility of the franchisor, so the future entrepreneur receives an FDD (Franchise Disclosure Document).
Legal risks when choosing a franchise
Franchisor litigation. The participation of the franchisor in various disputes can be verified in various official sources, which are obliged to publish court decisions. Disputes can confirm or, conversely, spoil the franchisor's reputation, so this may be one way. In addition, Rospatent in the Register does not publish information on the presence or absence of disputes in relation to trademarks, therefore, in order to check the franchisor's rights to a trademark, one should also refer to the study of reputation in terms of participation in disputes. The franchisor can independently provide this information. The FDD sets fairly high disclosure requirements: the copyright holder is obliged to report cases of bringing to responsibility the company's management.
Financial history of the franchisor. Some franchisors provide auditor reports or other independent assessments. If the franchisor does not do this on his own, the potential franchisee should familiarize himself with the minimum indicators of the financial aspect of the copyright holder's activities. This will be especially important for those franchising relationships in which the franchisor is responsible for the supply of materials or goods: you need to make sure that he has enough funds to purchase them.
Analysis of the results of intellectual activity
Under a commercial concession agreement, a prerequisite is the granting of rights to a trademark. Therefore, when concluding a franchise agreement, one cannot but analyze the following issues:
- The franchisor has an exclusive right to trademarks, which must be registered;
- The duration of these rights;
- Verification of the trademark certificate, which the copyright holder must have (Article 1481 of the Civil Code of the Russian Federation).
In addition to the trademark, you can transfer exclusive rights to other objects, for example, to inventions or utility models. In this case, you can also check whether the franchisor's rights to them are registered in the Rospatent Register.
Commercial risks when choosing a franchise
Assessing a company's potential can be difficult. One of the criteria can be information about already working franchisees, their success or reasons for failure. You can ask to provide these data, while in FDD they are required.
If legal risks can be identified through formal analysis, then commercial risks can be identified through informal sources. By concluding a franchise agreement, you actually gain a reputation, so you should pay attention to reviews about the company or its mentions in the media.
The success of a particular franchisee depends on the support of the franchisor. Therefore, while examining the model, see if consulting services, employee training, etc. will be provided.
Thus, the choice of a franchise depends on many factors. To make the choice easier, the future franchisee needs to have the necessary information. It can be found either from various sources, or from the franchisor itself. The reputation can be found both on the basis of court cases, if any, and from reviews and mentions. Financial indicators can also indicate the counterparty's dishonesty, since usually the franchisor has many responsibilities, from the supply of goods or materials to training. If you have any questions, please contact A4 Law Firm lawyers.
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