Franchise Agreement I
Key Commercial Issues
The franchise agreement is largely a matter of contract law. The core of the agreement is the grant to the franchisee of an exclusive or non-exclusive license to operate the franchise business, together with ancillary intellectual property rights, know-how, and assistance.
Territory
The grant of the franchise will define the area, period, and nature of the rights granted. It may be a political, geographical, or regional area.
Identity and Control
The identity, characteristics and relevant personnel of the franchisee will often be important to the franchisor. It may be provided that the grant of rights is conditional on the continued involvement or employment of the key persons concerned.
Setting Up
The franchisor’s initial obligations under the agreement, which may be in return for an initial fee, may include the giving of advice on premises, fixtures, and fittings, equipment and establishment. There may be provision for a launch, furnishing of manuals and training programs and in some cases, a financial package.
Financial Obligations
The fee clause will set out the financial obligations. There may be an initial franchise fee in an amount specified in the agreement. The terms of the initial fee are subject to negotiation. There may be a periodic fee which is a percentage of turnover/ sales.
There are likely to be mechanisms to verify gross sales. They may be automatically monitored at the point of sale. Records must be maintained to establish and record the gross receipts. The franchisee may be obliged to reports sales by electronic or other means. The franchisor will usually have the right to audit and verify the sales.
Payments
The payment of interest outside of Ireland may require the payer to withhold tax and pay it to Revenue. More generally there are obligations on Irish resident to withhold income tax on many payments outside the jurisdiction to non-residents.
Payments are usually in the domestic currency. This raises currency issues in the case of a franchisee abroad.