Franchise Advice
Joining forces F
ranchising is a form of
collaboration between the franchisor, as the owner of a proven business system, and an independent third party
appointed by the franchisor to operate an identical business as a franchisee. A fundamental element of the
relationship between the franchisor and the franchisee, and one which is heavily promoted by many franchisors in their recruitment literature, is that the franchisee will be operating their own independent business, entirely separate from the franchisor.
This is the traditional ‘business format’ franchise model and remains the one most commonly used in franchising today in the UK. However, there are other ways in which businesses can work together to achieve the common aim of generating revenue and profi t. The joint venture is one such example. The classic joint venture typically involves two independent companies engaging together on a specifi c project,
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BusinessFranchise.com | October 2017
each contributing their own expertise or fi nancial support and resources. This kind of relationship is much more likely to be a meeting of equals, both of whom recognise that they each have something to gain by pooling their fi nances and resources for a particular purpose.
It might seem unusual to be talking about such arrangements in the context of franchising. However, there are a number of franchisors in the UK now that have combined the traditional business format franchise with the joint venture model to create the ‘joint venture franchise’. So how does this diff er from the traditional franchise model and what are the potential implications for any prospective investor shareholder? In the traditional franchise model one
or more individuals looking to acquire a franchise can choose either to trade as a sole trader, in partnership as franchisees, or set up their own limited liability company, which will be appointed the franchisee. The individuals will each have shares in that franchisee company and appoint
themselves as its directors. The company will enter into a franchise agreement with the franchisor and the franchisees will typically be joined into that franchise agreement as guarantors of their newly formed company’s liabilities and obligations.
The franchise agreement will contain the usual comprehensive provisions regulating and restricting the activities of both the franchisee company and the individual shareholders. The franchisor will play no part in the ownership or management structure of the franchisee company. In the joint venture franchise model, again, there is a franchisee company, but here it is jointly owned by the franchisees and the franchisor. It is not independent of the franchisor.
Typically, the shares in a joint venture franchisee company are divided into two classes. One class of shares will have voting rights, but no right to share in any profi ts made by the company (voting shares). The other class will be the mirror image, having no voting rights but entitled
Jane Masih explains the joint venture, a different approach to franchisee ownership
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