An international franchise agreement involves a franchisor allowing a franchisee in another country to explore, and use their intellectual property rights, or duplicate a business format in a foreign market in a given period of time.
The party’s relationship is governed by the international franchise agreement and the franchisee pays the franchisor agreed fees such as advertising or sales fees. Under this agreement, the franchisee gets an opportunity to trade well-known products or services provided by the franchisor or their supplier.
For most franchises, expanding the franchise business in the U.S makes a lot of sense, if you have an overseas brand and want to franchise in the United States, this guide will help you.
The fact is that the process of franchising may be almost the same with few factors to consider. Therefore, it’s advisable to have a franchise attorney guide you for an in-depth knowledge of what factors to consider when dealing with an international franchise.
Key Elements In An International Franchise
A franchise agreement attorney will tell that there are many opportunities for internalization of the franchise system. One best concern for anyone who wants to venture into an international franchise business is that they should consider having an individual unit or a master franchise.
Where you may choose to deal with a master franchise in a foreign country or use a wholly-owned company, another option would be to appoint other franchisees from other countries.
The franchisee gets the right to use intellectual property through initial or periodic payment and royalty fees. This helps the franchisee to use a well-known brand.
The franchisor has to have a contractual agreement or have such provisions in their license agreements. If you’re looking for an international franchise business opportunity, you probably would like to understand what it entails. Below are the key elements that form up that kind of business relationship:
- Fees paid: The initial fees and the ongoing costs are calculated in percentage of the master franchisee revenues. However, both parties have a right to decide on the mode of payment of such fees.
- Dispute resolution: In case of disputes, the master franchisee must be guided by the law applicable to the franchisor country. However, this may be subjected to several factors.
Under such circumstances, it would be prudent to use international commercial arbitration. This proves to be less costly. Besides, the forum is considered to be neutral. Both parties have a chance to choose an arbitrator with the relevant knowledge.
- Termination of the agreement: For a master franchise agreement, the termination may happen immediately after expiry unless the franchisor chooses to renew. Where there are issues such as bankruptcy or insolvency, the termination becomes automatic. Termination may also arise if the master franchisee is involved in a material breach. This may lead franchise litigation.
The FDD has to be in line with the federal rules that govern US franchising. You and your franchise attorney can decide whether you will have your FDD registered with the rights of the designated state regulator before you start up any business.
Master Franchise Responsibilities
To operate the international franchise business smoothly, the franchisee has to be confidential of the franchisor’s information and any other operation or activities deemed private. There are many obligations under the master franchise. They include:
- Proper use of trademarks following the agreement
- There must be a narration of the franchisor and franchisee
- The narration of the international franchise system.
- Consequences of any amendments in future
Where both parties attained the set target, there may be an option to expand or reduce the territory. There may also be exclusiveness regarding the territories. Where there are no limitations, the master franchisee may be allowed to franchise the business without a third party of the franchisor.
Speak To An Experienced International Franchise Attorney
If you want to venture into an international franchise business, you must look for a lawyer who understands the business.
You will learn how to exercise reasonable quality control over available trademarks or intellectual properties. In addition, the lawyer will help negotiate the initial and ongoing fees and ensure you understand what is needed to comply with the commercial standards.
You have to be conversant with the master franchise contract that regulates the relation in the franchise network.
As a franchisee, you will have the right to provide services depending on the industry you choose and what has been developed by the franchisor.
A master franchise is by far the best relationship. Therefore, if you want to delve into the international franchise business, you should look for a well-experienced franchise lawyer to offer guidance.
You have to understand the critical elements of the agreement. This is the only way to know the intentions of the franchisor before agreeing to enter into an agreement.
Whether you need a direct franchise agreement or master agreement, you need commercial and technical support to franchise in the U.S correctly.