Purchasing a franchise allows you to buy into an established brand with the support of someone with business experience. This substantially reduces the stress, time and money that comes with building a business from scratch and ensures your business has customer loyalty from the beginning. However, purchasing a franchise is a big decision. Therefore, it is crucial to engage a franchise lawyer to help you purchase a franchised business. This article will take you through five reasons you should engage a lawyer when purchasing a franchise in New Zealand.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Simplify the Process
Understanding legal documents and processes can be complex. When buying into a franchise, you will need to understand certain legal documents and processes, including the franchise agreement, which is the binding contract between you and the franchisor. Furthermore, the language in franchise agreements can be challenging to understand, and given the contract is legally binding, it is essential to understand the terms of the franchise agreement before you sign it.
A franchise lawyer can help you understand precisely what you must do before finalising your franchise agreement. For instance, they can help ensure you avoid an unbalanced contract or an agreement with unreasonable contract terms. Moreover, buying into a business is a significant and often emotional decision. So, a franchise lawyer can provide an independent, unbiased opinion on the franchise agreement and other related steps. Indeed, with their assistance, you can confidently move forward with making your decision to purchase the franchise.
Clarify Key Terms
A franchise lawyer will help you understand precisely what you agree to, including the key terms of your franchising agreement. Often, this agreement can contain a lot of legal terminologies. For example, some standard terms in franchising include:
- local marketing area or territory;
- royalty fee;
- marketing levy;
- local marketing expenditure;
- restraint of trade, restrictions on competition or restrictive covenants;
- operations manual;
- guarantee and indemnity; and
- breach notice or event of default.
A franchising lawyer will help explain these terms and how they will apply to you in the context of operating the business.
A franchise lawyer can talk you through the relevant sections of the franchise agreement and advise on whether they need to be negotiated or removed.
Continue reading this article below the formNegotiate the Franchising Agreement
Every contract has terms that can be negotiated, including a franchise agreement. One of the critical things a franchise lawyer can help you with is advising on which terms of the franchise agreement should be negotiated and then conducting these negotiations on your behalf with the franchisor’s lawyer. For example, a franchise lawyer might be able to help you negotiate terms relating to:
- length of the agreement;
- royalties;
- any unfair contract terms or terms that do not comply with laws;
- ensuring certain obligations are mutual;
- adding in additional warranties or obligations for the franchisor to comply with; and
- removing unnecessarily restrictive clauses.
A franchise lawyer can also help you understand the franchise territory, including whether your territory is exclusive and if other franchisees can operate in the same area. These geographical boundaries can impact how successful your business is, so it is essential that you carefully consider these parameters when negotiating your agreement and discuss them with a lawyer to understand if they are fair and reasonable.
Establish Other Legal Components
A franchise agreement is the main component of setting up a franchise. However, it would help if you considered many other processes and legal when setting up a business. Firstly, in consultation with your accountant, a lawyer can advise choosing an appropriate business structure to operate the franchise and help you obtain a personal IRD number for paying income tax and GST. For some types of business structures, additional documents might be needed, such as shareholder agreements or a partnership agreement, which your lawyer can prepare.
A franchise lawyer can also help review any additional documentation provided by the franchisor in the operation of the franchised business. For example, some extra documentation you might receive and should get advice on include:
- lease or documents regarding premises, such as sub-leases;
- loan documentation;
- employment agreement templates;
- deeds of guarantee and non-disclosure agreements;
- disclosure document, if the franchisor is a member of the Franchise Association of New Zealand (FANZ); and
- supply agreements or credit terms for the purchase of goods.
Working with a lawyer will help you understand these documents and any legal risks, ensuring you can start your business in no time.
Understand Dispute Resolution Procedures
The length and complexity of franchise agreements mean disputes may arise from time to time. For example, once you start operating the business, the franchisor may have an issue with something you are doing, or you might feel that the franchisor needs to provide you with the support you expected.
Before signing a franchise agreement, a franchise lawyer will help you understand how dispute resolution works as a franchisee. This includes helping you understand your rights and obligations and the steps required to issue a formal complaint if the need arises.
Key Takeaways
Purchasing a franchise means buying into an established brand. This can reduce the stress, time and money that come with building customer loyalty. However, several challenges come with purchasing a franchise that a franchise lawyer can assist with. This includes:
- simplifying the process;
- clarifying key terms;
- negotiating the franchising agreement;
- establishing the franchise; and
- teaching you dispute resolution methods.
If you need assistance purchasing a franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
The Franchise Association of New Zealand (FANZ) is a professional body that promotes franchising on a national level. The FANZ aims to establish minimum standards across the industry by having its members abide by a Code of Practice and Ethics.
Purchasing a franchise means buying into an established brand, reducing the stress, time and money that comes with building customer loyalty. However, several challenges come with purchasing a franchise that a franchise lawyer can assist with, including simplifying the buying process and negotiating the franchising agreement. They can also clarify the key terms and teach you dispute resolution methods. Finally, a franchise lawyer can help you with all other business-related registrations.
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