The franchise agreement

The Franchisor also provides the Franchisees with a right to use the distinctive signs associated with the Trademark :

– the architectural concept to be implemented within the network’s stores,

– the graphic charter to be used for their communication media,

– the uniforms to be worn by staff.

• Second ingredient: the Know-how

The Know-how is “a body of practical information (…) resulting from the Franchisor’s experience and tested by him, which is secret, substantial and identified”.

French Courts have had occasion to specify that it can consist in particular of a combination of “know-how to select” and  “know-how to sell”:

– Know-how to select: the Franchisor has identified and selected specific products beforehand;

– Know-how to sell: the Franchisor provides the Franchisee with advice on how to optimize and maximize the sale of its products.

• Third ingredient: the assistance

It’s not enough to provide the Franchisee with a right to us e a Trademark and a Know-how: the Franchisor must also provide ongoing assistance, to enable the Franchisee to implement the know-how in the best possible conditions.

This assistance shall be formalized through visits from the Franchisor, regular remote and face-to-face advice, organization of events with other Franchisees (network conventions), ongoing training, etc. The Franchisor is the Franchisee’s first point of contact.

This assistance relates to the Franchisor’s know-how, but does not cover the fundamentals that every business owner must have in order to run a business.

The Franchisee benefits from assistance, but does not become an assistant: he remains above all an entrepreneur, responsible for his business, and must be proactive in this respect. The Franchisee must therefore manage their own accounts and staff, as well as complying with the legal and regulatory obligations arising from their activity.

• Which steps shall be undertaken by the Franchisor ?

Once all the ingredients of a franchise are met, it’s time to prepare for the launch:

 

• Piloting the concept

Franchisor must have experimented its know-how through pilot unit(s). This need generally implies the opening of at least two owned-stores, where the concept will be tested, adjusted and prepared for franchising.

Franchisors are generally required to demonstrate at least two years of profitability before launching a franchise.

• Formalizing know-how

The know-how passed on to Franchisees must be formalized in writing, and is usually contained in manuals (called “operating manuals”, “bibles”, “know-how manuals”, “books”).

These manuals must be drawn up by the Franchisor prior to the launch of the franchise. These manuals are delivered on paper and/or digitally.

At the same time, the Franchisor must define the details of the initial training course designed to explain and inculcate all aspects of the know-how to the new Franchisee: content, duration, theoretical component, practical training in the Franchisor’s establishments, etc.

Which tools?

Finally, the Franchisor must ensure that it has all the tools necessary for its development within the framework of a franchise network.

• The pre-contractual information document (“DIP”)

The Franchisor must provide the Franchisee with a “DIP” (also known as “Franchise Disclosure Document”) at least 20 days before the signing of the franchise agreement, and at least 20 days before any investment made by the Franchisee with a view to operating a franchised unit.

• This DIP must include the information listed in articles L. 330-3 and R. 330-1 of the French Commercial Code, and aims in particular to present :

– the Franchisor: K-bis extract, bank details, previous experience of managers, annual accounts for the last two years

– the network: list of sales outlets, list of Franchisees, history of the network, former Franchisees list

– the market: the Franchisor must submit a report on the national market concerned, as well as a presentation of the state of the local market. Nota bene: do not confuse “state” with “study”: the study is the responsibility of the future Franchisee, who must deeply study its market before executing the franchise agreement

– investments relating to the franchise contract: entry fee, royalties, CAPEX, etc.

– the franchise agreement, outlining the main obligations.

• The contract

The Franchisor-Franchisee relationship shall be formalized through a franchise agreement, which sets out the various stages in the relationship between the parties:

1. before the start of the Franchisee’s activity: initial training, details of outlet layout, ordering of initial stock, … ;

2. from the start of the Franchisee’s activity: assistance with opening, visits, supplies, etc. … ;

3. at the end of the relationship: removal of brand-related elements, post-contractual non-competition undertaking by the Franchisee, etc.

The Franchisee’s financial obligations must also be clearly mentioned (entry fee, operating and communication fees, product price list, network software license, etc.).