Legal Stages of Franchising
Please see below the various stages you will need to go through before your Franchise purchase is completed.
1. Non Disclosure Agreement (NDA)
Once you have chosen a Franchise opportunity you wish to further pursue you will want to find out more from the Franchisor. The franchisor may disclose relevant information to help you decide whether to proceed further however some Franchisors will ask you to sign either a Non Disclosure Agreement (NDA) or a confidentiality agreement.
2. Franchise Information Memorandum (FIM)
Most franchisors will provide you a Franchise Information Memorandum (FIM) which is a snapshot of the franchise and also includes some financial information from past examples and also what you can expect to be doing. This is a extremely important tool to use when deciding whether to proceed to the next step
3. Deposit
Once you have decided to proceed with a Franchisor you may be asked to enter into a Deposit Agreement where you will be asked to pay a deposit to the Franchisor to begin work on your franchise, this may include site selection, the preparation of the franchise agreement and help with any business plans that may be required. Please ensure you read through this carefully as some may be non-refundable, it is always good to ask that before any work is carried out that may affect your deposit that they ask you for the ok to continue so that you know where you stand if you decide to pull out.
4. Review the Franchise Agreement
Once a deposit has been paid the Franchisor will have drafted by their solicitor a copy of the company’s Franchise Agreement. Once you receive this you should seek legal advice on this agreement.
5. Lease
If your chosen Franchise includes looking for a location or premises then your Franchisor or property agent can be working on whilst the lawyers are looking at the franchise agreement. Once suitable premises are found you should seek legal advice from a solicitor on the lease. It is also important to ensure that the Franchise Agreement ties in well to the lease for example the length of the lease is the same as your franchise agreement and that the lease can be assigned if you sell the business or worse case the company folds.
6. Sign the Franchise Agreement
Once you are ready to sign the franchise agreement you will be normally asked to pay any remainder fees outstanding, and if your franchise is premises based then you would normally sign the lease simultaneously.