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
How independent is the franchisee actually still?
It is hardly visible that mergers of franchise organizations often take place via takeover
Franchisor liable for incorrect forecast to franchisee, tort
Once again, a judicial body has recently ruled on the prognostic problems that regularly occur in franchise relationships, in this case the Court of Appeal of 's-Hertogenbosch
Pushing the limits of freedom can cause conflict
Pushing the limits of freedom can cause conflict
Ludwig & Van Dam present at ALV Vereniging Albert Heijn Franchisees
Luwdig & Van Dam Advocaten will be present with a stand at the General Members Meeting of the Association of Albert Heijn Franchisees on March 12
Incorrect forecasts: franchisor must pay damages to franchisee
The court in Utrecht has recently rendered a judgment with regard to a prognosis issue.
The use of social media in the franchise relationship
Social media can no longer be ignored in everyday life.