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
Purchase obligation and competitive prices
On 9 September 2015, the District Court of the Northern Netherlands rendered a judgment on the question of whether a franchisor used market-based prices in the case of an exclusive purchase obligation.
The franchisor must demonstrate the correctness of the prognosis
The franchisor must demonstrate the correctness of the prognosis
Rules of the game for internet sales
On 21 July 2015, the 's-Hertogenbosch Court of Appeal ruled in a case involving a franchise agreement for a hairdressing supplies company.
Reasonable term for terminating the continuing performance contract
Reasonable term for terminating the continuing performance contract
The importance of interest in a non-compete clause
The importance of “interest” in a non-compete clause
Bonuses that are not in the franchise agreement
The Court of Appeal in The Hague On 31 March 2015, a dispute was submitted between a franchisee and franchisor about the settlement after termination of the franchise agreement with regard to bonuses.