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
Other messages
Duty of care franchisor in the pre-contractual phase
The District Court of Limburg ruled on 6 April 2017, ECLI:NL:RBLIM:2016:2843, that the franchisor has a duty of care towards the prospective franchisee in the pre-contractual phase.
Franchisee avoids joint and several liability in private
In a judgment of 28 March 2018, ECLI:NL:RBROT:2018:2913, the District Court of Rotterdam ruled on the meaning of the clause in the franchise agreement stipulating that
Incorrect prognosis due to lack of location research
The District Court of The Hague ruled on 21 March 2018, ECLI:NL:RBDHA:2018:3348, that a franchisor's forecast was unsound, as a result of which the franchisee had erred and the franchisor
Column Franchise+ – “Disputes about franchise fees”
Lately, it has also hit the biggest franchise organizations in the Netherlands. At the formulas of Albert Heijn, Hema, Etos, Bruna and Olympia, for example, there was and will be a lot
Ludwig & Van Dam sponsor of the Franchise Trophy 2018
On May 24, 2018, VVD member of parliament Martin Wörsdörfer and ID&T founder Duncan Stutterheim will present the Franchise Trophy 2018 on behalf of the Dutch Franchise Association.
Column Franchise+ – “Flashing quarrels about franchise fee must stop”
Lately, it has also hit the biggest franchise organizations in the Netherlands. At the formulas of Albert Heijn, HEMA, Etos, Bruna and Olympia, for example, there was and will be a lot