In short, franchising is the practice of using another person’s business model, a method of doing business, in which the franchisor grants the franchisee, the right or privilege to sell a product or service under the franchisor’s systems, procedures, get-up and structure.
How does it work?
Essentially the relationship between the franchisor and franchisee works as follows:
The franchisor sells the business kit /model to independent partners, general in different countries
The franchisees form the franchise network and pays a fee to form thereof
The franchisor seeks to duplicate as much as possible a tried and tested successful business system
The franchisee should follow and be guided by the franchise manual and other procedures and rules and regulations set out by the franchisee
Types of Agreements
Product or Service Franchise – The franchisor allows the franchisee to distribute goods utilising the franchisor’s trademark .
Business Format Franchise – This is the most common type of franchise, which involves not only the licensing of a product or service, but a method for operating the business. Most of today’s franchises combine both product and service and business-format franchises. The franchisee completely identifies with and adopts the manufacturer/supplier’s product, service or trademark, marketing strategy, operating manuals, standards, and quality control measures.
Licensing – The licensor grants to the licensee a license to use patents, know-how and/or trademarks but does not prescribe the manner in which the licensee conducts his/her business.
Distributorship– The manufacturer of a product supplies the distributor with products at wholesale prices. The distributor then resells the products to dealers or retails them directly to the general public. The manufacturer does not prescribe the method for operating a the business, but may provide training to improve selling techniques and product knowledge.
Single Unit Franchise – The franchisor grants the right to the franchisee to establish and operate a business at a single location. This is the most popular and simplest franchise format, especially for independent entrepreneurs. (Most relevant for the Maltese scenario).
Area Franchise – Enables the franchisee to establish more than one outlet within a certain territory.
Master Franchise – Enables the franchisee not only to operate an outlet in a certain territory, but also to sell sub-franchises to others within that territory.
Maltese law does not specifically regulate franchises or franchise agreements, thus the importance of sound franchising arrangements cannot be overstressed. Franchising arrangements involve a continuing relationship between the franchisee and the franchisor and a legal contract which outlines each party’s responsibilities.
No mandatory elements are prescribed by Maltese law concerning the form and content of a franchise agreement. Such agreements fall under general contract law and anything regulating contracts in general would usually be applicable in this case too.
It is also to be noted that there is no requirement under Maltese law for the registration of a franchise agreement nor any provisions addressing such registration.
Franchising is considered a powerful and efficient means of growing a business. Chetcuti Cauchi Advocates has acquired extensive experience in all aspects of franchise agreement assistance. Numerous businesses, franchisors and franchisees have been assisted by Chetcuti Cauchi in expanding their businesses through franchising. Our Franchising Team work closely with other practitioners in the firm in order to provide efficient advice on various matters relative to franchising such as intellectual property issues, corporate finance, group restructuring and corporate taxation.