Incorporation of the franchisee’s business into a private limited company
When the franchisor and franchisee conclude their franchise agreement, in most cases the franchisees sign the franchise agreement in the capacity of private individuals. The starting franchisee then enjoys various tax benefits, such as the start-up deduction.
Over time, it sometimes happens that for tax and other reasons it can be interesting for the franchisee to place his activities in a private limited company. Does the franchisor have to cooperate in this?
It is of course primarily dependent on whether the parties have arranged something in this regard in the franchise agreement. If this is not the case, the franchisor and franchisee must consult properly. After all, due to the contribution to a private limited company, the franchisor suddenly has to deal with another contracting party. A good franchisor would be wise to cooperate with the transfer of the company (and the franchise agreement) into a private limited company by the franchisee, but will set reasonable conditions for this. These conditions may consist of the fact that the franchisee must, of course, remain the majority shareholder or sole shareholder. The articles of association of the private company must also be assessed. For example, it must be prevented that the private company can be used for debt dumping from a holding company located above the company. It is also important that the franchisee remains privately bound to the obligations under the franchise agreement vis-à-vis the franchisor. After all, the franchisee has also entered into obligations towards the franchisor as a private person. In doing so, one must again guard against the risks concerning the independence of the franchisee and a possible fictitious employment relationship. The franchisor is therefore well advised to coordinate this with the franchisee before actually establishing a private limited company. If this consultation takes place properly, it is very well possible to effectuate things without surprises afterwards.
Ludwig & Van Dam franchise attorneys, franchise legal advice
![](https://ludwigvandam.megaconcept.nl/wp-content/uploads/2020/12/232court-min-400x222.jpg)
Other messages
The right to the formula name upon termination of the franchise relationship
In practice, discussions regularly occur when the franchise relationship is terminated between a franchisor and one or more franchisees
The possibility of actively or not actively recruiting customers outside
Based on the relevant regulations, active recruitment activities by the franchisee are permitted
Customers, clientele and exceptions thereto
Some franchise constructions have the characteristic that the products or services in question are only supplied to certain consumers.
Intellectual property rights
In general, the nature of a franchise relationship implies that, on the basis of a franchise agreement
Link rental agreement and franchise agreement
In franchise relations, the franchisor regularly makes business space available to the franchisee where the franchise establishment is operated.
Continuation of the franchise agreement at the then current
Franchise agreements often contain clauses that make continuation of the franchise relationship dependent