When considering the expansion of your business, there are three common ways to do so, namely Agency, Distribution or Franchise.
An agent will represent the supplier when seeking, negotiating and concluding contracts with the ultimate purchaser of the goods. Even where the ultimate purchaser deals principally (or even exclusively) with the agent, the contract created will be between the supplier and the ultimate purchaser. The laws regarding agency differs from general contract law and you need to specialist advice when entering into such arrangements to ensure you do not fall foul of the Commercial Agents Regulations.
A distributor will buy the goods from the supplier and then re-sell them at profit to the distributor’s own customers, there will be two contracts: one created between the supplier and the distributor; and a second between the distributor and the ultimate purchaser. Therefore, the end customers are the customers of the distributor, not the supplier. You need to consider carefully the nature of the arrangements to ensure you and not in breach of both EU and UK competition law.
A franchisee is a legally and financially separate business which is typically granted a licence by a franchisor to use the franchisors barding and operational modal to set up a similar independent business. Franchises provide a franchisor with faster access to distribution infrastructure and a lower cost than self sale. However, the downside to the franchisor is a loss of control, financial support to franchisee may cut into profit element, and the franchisor needs to divulge know-how and business information. For the franchisee it’s often a cheaper way to start a business with an established brand, access to finance is often easier than starting from scratch and the risk of failure is reduced. The downside for a franchisee is that the franchisee has less control than an independent business, royalties and/or mark ups may be payable on sales made and there are possible restrictions on ability to sell or restructure the business.
All three of these structures require careful consideration and we strongly recommend you seek specialist advice. Our commercial solicitors will provide you with the expert advice you need to expand your business and will discuss your commercial objectives with you to understand your priorities, advise, both in legal and practical terms, on the merits of appointing of each option and assist with implementing the necessary contractual arrangements to establish the appropriate relationship.
If you need assistance with the expansion of your business or advice on other options available to you, please contact David Powell, Partner and Head of Business Law.
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