The devil is in the detail when it comes to expanding overseas. Shanna Schulze highlights some concepts and concerns.
Franchising internationally has become a very popular means of expansion for many franchise brands. Cloud computing, an abundance of useful and cost-effective applications, and the ability to easily source products globally has made it so that even businesses that do not franchise in their home country or region can use franchising as a means to expand internationally.
Franchising internationally for a business can be a very complex undertaking, especially when the business is generally new to the world of franchising. Franchising internationally for an existing franchisor is less daunting because many legal and regulatory concepts will be somewhat familiar in most countries or regions, but no matter the comfort level of a business with franchising, international expansion requires significant business and legal planning, as well as a long-term financial and emotional commitment to making the venture successful.
It is always advisable to consult with a local franchise attorney that has experience in international franchising as well as special-foreign franchise counsel in the target country. Furthermore, it is common for a business’ local franchise counsel to perform a majority of the legal work needed for the venture while special-foreign franchise counsel reviews the work and opines on location-specific concerns. It is also advisable to seek foreign tax and accounting counsel to ensure that the method of accounting is appropriate and tax filings sufficient, and to seek special privacy counsel to ensure that a business’ privacy and security policies and procedures are adequate.
Unfortunately, a franchisor’s mistake related to the respective franchise, business opportunity, tax, or privacy laws can result in business-ending penalties, so ensuring compliance in those areas is almost as important as having a viable contractual structure.
Below are a few lists of some the most basic legal concepts and concerns that a franchise brand should consider related to an international expansion using a franchise-strategy. These lists should be thought of as a general starting point related to any international franchise transaction rather than a checklist of documents to be crafted or issues to be considered. There are many ways to pursue a business expansion and the one that will be most successful for a business will be the one that most effectively applies the law to that business’ unique set of opportunities and circumstances.
Business Structures & Associated Contracts:
• Master Franchise Agreement/Sub-franchise Agreement
• Area Development Agreement
• Area Representative/Development Agreement
• Pilot-Unit Agreement
• Single-Unit Franchise Agreement
• Multi-Unit Franchise Agreement
• Joint Venture Agreement
• License Agreement
• Distribution Agreement
Target Country Laws & Regulations:
• Formation & Use of Business Entities
• Business Opportunity Laws
• Franchise Sales Regulations
• Franchisor/Franchisee Relationship Laws
• Technology Transfer Laws
• Dispute Resolution Laws
• Intellectual Property Laws
• Privacy Laws
• Labor and Employment Laws
• Tax Laws
• Insurance Laws
• 1958 United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards
• 1971 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters
• 1980 United Nations Convention on Contracts for the International Sale of Goods
• Berne Convention
• Madrid Protocol
• EC Block Exemption Regulation
• Tax Treaties
ABOUT THE AUTHOR
Shanna Schulze is a corporate and franchise attorney for the law firm of Shumway Van