Shareholder And Partnership Agreements – Essential To A Franchisee’s Longevity
When looking at entering into a franchise with others, I always recommend the parties immediately get together after working out the relevant franchisee entity structure with their legal and accounting advisors, and have a lawyer work with them to create a partnership agreement or shareholder agreement, as appropriate. This assists to ensure that from the outset of the parties relationship, the parties fully understand and are in agreement as to their roles, liabilities, expectations and contributions required from day one through to the day the agreement ends for whatever reason.
By setting these clear expectations this should reduce any potential misunderstandings and enable agreed processes that have been put in place to deal with any potential sale, dispute, deadlock, death, and/or termination when the parties relationship is positive and communication is open and free flowing.
Some of the matters that you should discuss and consider together and with your advisors include:
- Purpose of the franchisee entity;
- The initial capital investment required from each party;
- Share allocations and directorships roles;
- The ongoing capital investment and/or funding requirements of each party;
- The immediate and long term roles of each party;
- Any parameters around remuneration for those working within the business and any restraints of trade that may also be required;
- What happens if there is a dispute, a party dies or someone wants to exit the relationship?;
- What minimum insurance requirements need to be put in place?;
- What decisions can be made by the majority, special majority i.e. 75% or require unanimous agreement?; and
- What is to happen in deadlock situations?;
When going through this process it is important to work with someone who understands franchising and your situation, so that the document is drafted to reflect your needs rather than a template.
Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.