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shareholder from establishing a competing business.


Failure to put these protections in place could result in shareholder disputes and significant loss to the business.


Be prepared


franchisors can often find the trail of agreements and legal demands daunting. The key is to address three core areas, says fraser Brown’s Gavin White


F


ranchisors need to consider their corporate structure. Most will establish a limited company as the main operating vehicle. However, careful consideration should be given as to how both the company and the shareholders within the limited company are protected. This is usually dealt with by way of a shareholders agreement that would cover the following issues:


• General business decisions, which will require agreement from a certain percentage of the shareholders


• Pre-emption provisions that state any shareholder wishing to leave must offer their shares to the other shareholders; or perhaps transfer provisions that will compel an exiting shareholder to offer shares for sale


• Restrictive covenants preventing an exiting


Ensuring ongoing trading agreements, such as supply contracts with vital suppliers are in order is often overlooked. The franchisor also needs to be mindful of its internal operations and should ensure that all employees have up-to- date employment contracts and that appropriate policies and procedures are put in place. Exit planning is also important. Too often businesses leave this until too late in the day. If it is addressed at an early stage then corporate structure can be set up in a tax effective way both in terms of profit extraction and a return on capital in a sale. n


More info


Gavin White is a specialist in Corporate Law and Partner at fraser Brown solicitors. for further information visit www.fraserbrown. co.uk or call 0115 9 888 777.


42 | www.franchisornews.co.uk


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