It is considered franchising to lease a successful company concept or brand to another party for a certain amount of time. Franchisees gain exclusive rights and know-how without having to invest in developing a business concept or building a brand. On the other hand, lessors also referred to as franchisors, can increase brand recognition and generate additional revenue through franchising. According to Latvian commercial law, which is covered in this article, the franchise agreement and the responsibilities of both parties are governed specifically.
Concept of franchise
Via a franchise agreement, the franchisor provides the franchisee with the authorization to utilize a range of exclusive rights. These rights may encompass the use of a brand name, trade, or service mark, as well as protected commercial information. This is done in exchange for the other party’s payment of the sum specified in the agreement. There must be a documented franchise agreement signed.
Remuneration under a contract of franchise
Paying a large amount to get the franchise rights and receiving a monthly payment to utilize the franchise are the two main components of franchise compensation. The suffrage deal stipulates the monthly payment amount.
The franchisor’s responsibilities
The franchisor is legally necessary to do specific undertakings before consenting to the arrangement, all through the length of the agreement, and after its end. This is finished in consistency with the franchise agreement’s guidelines and business regulations. For a franchise agreement to be finished, the franchisor should give the franchisee the following:
- The franchise’s general description
- Proof of the existence of included rights and know-how
- The contract length and its potential for extension
- The amount and schedule of payments, and
- Any other information the lessor deems substantial.
The franchisor must guarantee that the right to utilize intellectual property will remain in effect for the duration of the contract. During the duration of the agreement, he/she must assist and collaborate with the franchisee. In addition to providing training, he or she is required to support the franchisee with technical and commercial matters in critical areas including bookkeeping, logistics, delivery, and company management. Furthermore, to operate the franchise following the requirements outlined in the agreement, the franchisor must provide all appropriate documents, such as licenses, permits, instructions, and other paperwork. If items must be acquired from a certain provider, he/she must make sure they are delivered on schedule. The franchisor must also engage in promotional efforts to guarantee public awareness and the company’s positive reputation.
Duties of the franchisee
The franchisee must:
- Educate the franchisor on current information about circumstances that are crucial to the franchise agreement.
- Employ a franchise following the terms of the agreement.
- Honor and function as the franchisor, and refrain from tarnishing the franchisor’s reputation.
- Keep confidential any business information for a minimum of five years after contract termination.
- Let the franchisor inspect the franchisee’s work at the location of operation during normal business hours.
The repercussions of the franchise agreements
The mutually agreed upon agreement’s conditions must be followed by both parties. The parties may unilaterally terminate the agreement by unanimous consent. This can happen in cases where performing their respective commitments becomes too difficult or when false information was given before the agreement was finalized. If fulfilling their obligations has become too difficult due to objective changes in circumstances, they may discuss revising the terms of the agreement or ending it altogether. Should the parties be unable to reach a consensus on revised terms within a month, each may request that the contract be terminated or modified, with the parties’ profits and losses being divided equally.
The commercial law on restriction on competition
The franchisor must pay for the period of limitation of competition per the concluded contract. However, if the Franchise agreement was terminated due to the franchisee’s fault, then no compensation should be paid. An agreement to limit the professional activities of the Franchisee after contract termination must be concluded in writing. Competition limitation cannot be extended for more than a year.
Both sides profit from a franchise. Franchising not only enables businesses to increase their cash flow but also facilitates international growth, elevating the value and global recognition of their brand. Concurrently, the franchisee benefits from adopting a proven business strategy, significantly enhancing the prospects of success. Moreover, the process of establishing a company plan and building brand awareness is efficient and doesn’t necessitate extensive time or financial resources.
You may also find these articles helpful
Amendments to the memorandum of association of the stock company in Latvia
Change of legal address of a European Company in Latvia
VAT refund to the company registered in the EU
