Franchising in a BV
Franchisees are also increasingly setting up private limited companies. Usually prompted by reasons of a fiscal nature. However, not all franchise agreements are tailored to the fact that the franchisee is no longer a natural person, but a private company. This can lead to all kinds of ambiguities. For example, to whom are the obligations in the franchise agreement addressed insofar as they are personal in nature? Is the quality of the management sufficiently guaranteed?
It is therefore recommended in such a situation to carefully check the text of the franchise agreement and to adjust it if necessary, or to agree on an addition to it.
A problem of a different nature is that due to the contribution of the franchise company to a private limited company, recourse against the private assets of the franchisee is no longer possible. It is therefore wise to make additional arrangements for this with the director and major shareholder of the private limited company. Examples include guarantees and/or joint and several liability.
Finally, franchise organizations benefit from knowing who is being franchised with. In the case of a private company, this is by no means certain. After all, the articles of association can contain many provisions whereby the shares can be alienated and/or the control in the private limited company is transferred to another person or pledged. In the worst case, the bank and/or the competitor can exert a major influence on the franchise business to be operated. It is therefore also recommended that the contribution of a franchise agreement be partly dependent on the prior approval of the articles of association of this company. By amending the articles of association and/or additional provisions regarding the control of the company in the franchise agreement itself, an attempt can be made to create more guarantees against unintentional alienation of the franchise company.
Of course, when amending the franchise agreement and/or amending the articles of association, it should always be remembered that the franchise entrepreneur remains independent and does not create a disguised employment contract because too much influence is exerted on the franchisee’s business. From a competition law perspective, the formation of cartels must also be prevented. If both franchisor and franchisee properly consider the mutual opportunities, threats and opportunities in advance when entering into a franchise relationship with a private limited company and/or contributing the existing franchise business to a private limited company, then the risk is minimized that third parties unintentionally exercise influence on the franchise company and/or it is unclear who has which obligations, as well as recourse in problem situations appears to be illusory.
Ludwig & Van Dam franchise attorneys, franchise legal advice
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Article The National Franchise Guide: “Why joint and several liability, for example, next to private?” – dated 7 January 2020 – mr. AW Dolphin
Franchisees are often asked to co-sign the franchise agreement in addition to their franchise, for example. Sometimes franchisees refuse to do so and the franchise agreement is not signed.
Ludwig & Van Dam Advocaten assists Sandd franchisees: Franchisees Sandd challenge postal monopoly in court – dated 12 November 2019 – mr. AW Dolphin
The Association of Franchisees of Sandd (VFS) is challenging the decision of State Secretary Mona Keijzer to approve the postal merger between PostNL and Sandd before the court in Rotterdam.
Franchisee trapped by non-compete clause? – dated October 21, 2019 – mr. AW Dolphin
The District Court of East Brabant has ruled that a franchisee was still bound by the non-competition clause in the event of premature termination of the franchise agreement.
Supermarket letter – 26
Supermarket Newsletter No. 26
Link franchise agreement and rental agreement uncertain? – dated October 14, 2019 – mr K. Bastiaans
It is no exception within a franchise relationship that the parties agree that the franchise agreement and the rental agreement are inextricably linked.
Termination of franchise agreement in case of changes in leased retail space – September 27, 2019 – mr. AW Dolphin
Termination of a franchise agreement in light of a substantial change in the leased retail space.