Your franchise business is performing well in Australia; you’ve cultivated a loyal following, expanded quicker than you anticipated, and you are reaping the rewards. It’s only natural in such circumstances to wonder beyond our shores girt by sea. It can’t be that hard to replicate the success offshore, right? Well, before you board that plane and start looking for international business partners, you need to consider the many issues involved in franchising internationally. This article sets out the many legal and structural decisions that you will need to make.
1. Local Business Structure
Before franchising internationally, it’s important to make sure you have properly structured your local operations. In particular, this involves making sure you have protected your assets and planned your tax.
To date, you may have been operating under a single corporate vehicle. However, with the expansion plans, it may be appropriate to incorporate different entities to perform different functions of this business.
Changing such operations will be much more challenging once the international agreements are in place. At that stage, it may be necessary to assign certain contractual rights or amend international registrations. You should also consider speaking with an accountant about setting up a trust to plan your tax.
2. Appropriate Expansion Model
The select the appropriate expansion model to adopt, you should consider if youw ant to;
- register a company overseas to operate as a local franchisor and enter into a master franchise relationship between the two entities;
- locate an appropriate third party franchisor in the relevant jurisdiction and grant to them a master franchise agreement;
- register as a foreign trading entity;
- take a step back from your international operations and leave the running of the business to someone else.
Considerations that will influence your choice will include the:
- level of international consistency you want;
- amount of control you wish to exercise;
- amount of money you want to expand on the international expansion; and
- available personnel.
Unfortunately, the answer is unlikely to be as easy as addressing these issues and picking the right box. It will involve consideration of some of the other legal issues set out in this article, including local company law and tax law. You need to consider all matters in developing a holistic and clear plan for international expansion.
3. International Definitions of Franchise
What is a franchise under the law is likely to differ from country to country. In general, if a legal relationship looks, smells and sounds like a franchise – it will be a franchise regardless of the title of the relevant document and how the parties refer to each other.
Contrastingly, in some other countries, the term is defined within the applicable franchise/consumer law.
4. International Franchising Laws
Some countries, like Australia, have in place a Franchising Code which is binding on all parties to franchise relationships. The prescriptive nature of such a Code means that any clause which is inconsistent with the Code, even if acceptable and operational in another jurisdiction, could be declared invalid.
Further, there are potential ramifications for not complying with the Code. The difficulty is that each country is different which makes it prudent to seek local advice before each and every planned expansion.
5. International Intellectual Property Laws
When thinking about taking your brand to a particular country, you should ensure you own the intellectual property rights. You can do this through international trade mark registration. Essentially, if you don’t register, someone else can, which can be disastrous for your international expansion.
The precise costs and the process will differ from jurisdiction to jurisdiction. It will depend on whether the relevant country has signed on to international conventions and/or is a member of the World Intellectual Property Organization. Again, you should speak with a trade marks lawyer.
6. Dispute Resolution
While it’s tempting to make local dispute resolution a requirement, this may not be permissible, or indeed practical as applicable laws may dictate where the procedure must take place.
Further, internationally acceptable dispute resolution procedures, such as that used in the International Chamber of Commerce International Court of Arbitration, may be appropriate and appealing to incoming master franchisees submitting to a foreign jurisdiction.
7. International Company Laws
The system of registration of companies, and the legal requirements once they are registered differ from country to country. For example, you will need to investigate the different requirements relating to local directors and local officers.
8. Contractual Construction Issues
In essence, a franchise agreement is simply a commercial contract between two parties. How the law construes an agreement depends on the contractual construction in the relevant jurisdiction.
In Australia, the court can invalidate a penalty clause found in a contract. This may not be the case in other jurisdictions. Similarly, certain contractual provisions, such as a restraint of trade clauses, may be subject to specific legislation.
Further, laws may be implied into a contract. The existence and nature of such implied terms are also likely to depend on local laws.
9. Practical Considerations
When franchising internationally, there will be numerous practical considerations, including:
- the appropriate language;
- the currency to adopt;
- who bears any conversions fees;
- the forum for dispute resolution; and
- how any translations will occur.
You should consider your target market when making these considerations.
10. Local Tax Laws
Tax laws are not universally uniform. Depending on the type of business operation, your business may be subject to additional taxes than under the Australian Tax Laws.
11. Regulatory Laws
Expanding your food business? Getting across food safety requirements in the new jurisdiction is prudent.
Want to take your transport franchise business to another country? You may want to look into registration and road rules before you go.
Regardless of the type of business, it will no doubt be subject to local regulatory provisions, which, again, should be subject to local advice and investigation in the preliminary planning stages.
12. Import/ Export Laws
While world trade has no doubt become easier, exporting goods to another country is itself subject to a minefield of regulations and legal requirements. If you want to maintain the position as an approved supplier, it is prudent to ensure you are aware of the process, requirements and associated taxes of doing so.
13. International Employment Laws
Depending on the expansion model adopted, it is advisable to obtain some basic local advice on the operation of employment laws in the relevant country. Here, such factors as minimum wages, payment for training, statutory entitlements and benefits will be relevant to planning not only how the business will operate overseas, but also in developing your modelling and associated fees, charges and local retail pricing.
Further, while the relevant franchise agreements will almost always define the relationship between the parties as that of independent contractors, there is a prospect for the relationship to be deemed that of employer/employee under local laws.
These are just some of the legal issues you’re going to have to consider on your path to franchising internationally. If you are planning on franchising internationally, your first stop should be to the offices of a local franchising expert. This expert will be able to help you put in place an action plan, recommend local experts and lines of enquiry, and help you understand your requirements. If you have any questions about franchising internationally or need assistance taking your franchise overseas, get in touch with LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.
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